Capital Equipment Repairs - S-Corp

[MMason17]

For an S-Corp, capital repairs were made to equipment in 2022, and an engine replacement to a 100% work-use vehicle in 2023. I am unsure how to enter these in turbo tax. The equipment is still being depreciated and so is the truck. Originally, I had them entered as new assets in TT titled, "Equipment Capital Repair" etc., but I feel like this is incorrect. 

Note: I am pretty sure whatever I do for the 2022 repair I will also do for the 2023 repair but I wanted to state the facts as they are. I know these are two different years and each year has its own version of TT business software. I have both. 

[Mike9241]

you haven't yet filed your 2022 S-corp? A 2022 calendar year s-corp return was due 3/15/2023. if extended then 9/15/2023. You're facing late filing penalties of close to $200 a month for every month late for up to 12 months. The same is true for the 2023 return which was due 3/15/2024 unless extended. if it was it's now due 9/15/2024

 the replacement of parts that constitute “a major component or a substantial structural part of a unit of property” must be capitalized [Treas. Reg. §1.263(a)-3(k)(1)(vi)]. A major component is “a part or combination of parts that performs a discrete and critical function in the operation of the unit of property.” Substantial structural parts are those that constitute “a large portion of the physical structure of the unit of property” [Treas. Reg. §1.263(a)-3(k)(6)(i)(A-B)].

A facts and circumstances test is used that involves both quantitative and qualitative factors ent. Treas. Reg. §1.263(a)-3 provides an example that may be instructive. Providing a new engine, cab, and petroleum tank for a petroleum hauling truck would be capitalized because it involves the replacement of major components of the vehicle.

[Mike9241]

you haven't yet filed your 2022 S-corp? A 2022 calendar year s-corp return was due 3/15/2023. if extended then 9/15/2023. You're facing late filing penalties of close to $200 a month for every month late for up to 12 months. The same is true for the 2023 return which was due 3/15/2024 unless extended. if it was it's now due 9/15/2024

an amended s-corp return for 2022 that was filed timely does not incur late filing penalties 

as for your repair question

 the replacement of parts that constitute “a major component or a substantial structural part of a unit of property” must be capitalized [Treas. Reg. §1.263(a)-3(k)(1)(vi)]. A major component is “a part or combination of parts that performs a discrete and critical function in the operation of the unit of property.” Substantial structural parts are those that constitute “a large portion of the physical structure of the unit of property” [Treas. Reg. §1.263(a)-3(k)(6)(i)(A-B)].

Determining whether replacement parts constitute major components or substantial structural parts is a matter of facts and circumstances. The regulations don’t provide a clear distinction between incidental replacement parts that can be expensed and those that must be capitalized. They indicate that the facts and circumstances involved in making this determination should include “the quantitative and qualitative significance of the part or combination of parts in relation to the unit of property” [Treas. Reg. §1.263(a)-3(k)(6)(i)].

Treas. Reg. §1.263(a)-3 provides some examples that may be instructive. Providing a new engine, cab, and petroleum tank for a petroleum hauling truck would be capitalized because it involves the replacement of major components of the vehicle.

what you call thenin turbotx is irrelevant. the IRS does not see that. If the S-corp was profitable, you may be able to expense the capital repairs 

[MMason17]

@Mike9241 

I appreciate the lengthy description you gave, however, much of it did not answer my question. I’m aware of what constitutes a capital repair and both situations qualify. I filed my 2022 taxes and have to amend them. Because of that, I thought I would clarify whether or not I categorized this correctly in TT. Since TT will not e-file my amendment, I have to mail it in. 

From college, I remember that capital repairs increase the basis and extend the life. I just wasn’t sure how that carries over to your taxes. 2022 was my first year filing the taxes myself and I made one mistake that I have to correct and therefore went over everything to make sure I don’t make another. The business operated at a loss in 2022, so I can’t deduct the expenses. 

[PatriciaV · Accepted solution]

Yes, you are correct to report the cost of major equipment repairs/upgrades as a separate business asset for depreciation. Choose the same category for this asset as you used for the related equipment. This entry will set up the same useful life, which will be more than is left for the asset. This is logical, since the repair/upgrade extended the useful life of the related equipment.

@MMason17