State whether each of the following expenditures incurred during the current year should be treated as a repair expense or capitalized and depreciated using MACRS:
- Replacement of the carpeting in a rental apartment
The replacement of the carpet is a maintenance cost that does not extend the useful life of the rental apartment. Therefore, the cost of the carpeting is a maintenance expense. However, if the carpeting is done as part of the purchase of the rental apartment, it is capitalized as part of the cost of readying the apartment for its intended use.
- Replacement of the drill bit on a gas-powered post-hole digger
The drill bit is tangible property. If its useful life does not extend beyond the year placed in service, its cost is considered a repair expenditure and it is deducted in the current year. If the drill bit has a useful life extending beyond the year placed in service, its cost is capitalized and depreciated.
- Replacement of the water in the ponds of a catfish farm
Generally, water is not depreciable because it does not have a definite life. However, this particular water probably has a definite life because it has a specific use. The expenditure is more like a repair cost. Therefore, it is deducted in the year incurred. However, if it can be established that the water has a useful life to the activity of greater than a year, its cost will be capitalized and depreciated.
- Replacement of spark plugs in a delivery truck
Replacing spark plugs does not increase the capacity or extend the useful life of the truck. The spark plugs merely allow the truck to perform in its intended operating condition. Therefore, the cost of the spark plugs are expensed as a repair cost.
- Repainting the exterior of a personal use auto
The repainting does not extend the useful life of the auto. Therefore, the cost is not capitalized and is a current expense similar to a repair. However, the cost is not deductible since it is a personal expense.
