Materials and Supplies

The 2014 repair and capitalization regulations expand the definition of the term “materials and supplies” to include items costing $200 or less, as well as emergency spare parts. As a result, materials and supplies now include tangible property that is used or consumed in the taxpayer’s operations, that is not inventory held for sale, and that—

• Is a component acquired to maintain, repair or improve a “unit of tangible property” (UOP) owned, leased or serviced by the taxpayer and that is not acquired as part of any single UOP, including rotable and temporary spare parts (rotables) and standby emergency spare parts;

• Consists of fuel, lubricants, water and similar items reasonably expected to be consumed in 12 months or less, beginning when first used in the taxpayer’s operations;

• Is a UOP that has an economic useful life of 12 months or less, beginning when first used or consumed in the taxpayer’s operations;

• Is a UOP that has an acquisition cost or production cost of $200 or less; or

• Is identified in published guidance as materials and supplies.