At what point do I lose the repair penalty

After doing some experimentation, I've come to the conclusion that repairing any tools that you make (not counting higher-quality items that are found) is not worth it at all. The Iron Pickaxe, for example:

One scrap iron = 5 iron in the forge
One forged iron = 10 iron in the forge = 2 scrap iron
Iron Pickaxe = 5 forged iron = 10 scrap iron
Repairing an Iron Pickaxe = 2 forged iron = 4 scrap iron (lost quality)
Scrapping an Iron Pickaxe = 7 scrap iron (3.5 forged iron returned to you)

So basically if you scrap a completely broken pickaxe (because tools crafted with forged iron don't "poof" like stone tools when they get to 0 durability) you get 70% of your original material back. You only need 3 additional scrap iron to craft an item of the same (or higher, if your skill has increased since) quality.

This is also offset by the fact that crafting tools increases your tool construction skill (not necessarily a whole point, depending on your current skill) which will inevitably cause you to create better tools.

As mentioned before, the only exception to this for me is if I find a tool (Iron Pickaxe for example) that is far better quality than I can currently produce. I will repair that item when necessary (only after it's unusable) until it gets down to the level where I can craft a better quality tool, then I scrap it. Because of this, I always keep tools that I find that are higher quality than what I can make.

A side note, the "Quality Joe" (I think it's called) is the first thing I purchase once my Scavenging gets to the required level. It will cause found items to be 25/50/100 points higher quality. Now at around level 40, with Quality Joe maxxed out, I consistently find 600 level clothing and tools and other items, which is a great thing.

Edit: Repairing items may increase your construction tools skill as well, but since I hardly do it, it's not obvious to me. Someone else might chime and and report their findings.

Edit 2: I wanted to also point out that with the advent of getting iron from mining all stone, this produces a practically limitless amount of iron. It only takes a few hits to get 3 iron fragments, which is enough to make up the difference between repairing a pickaxe and creating a new one.

I have yet, however, to determine how this relates to a Steel Pickaxe. Taking 5 Forged Steel (which costs twice as much as Forged Iron) to create, but an unknown amount returned when the item is scrapped. Once I find this out (when it wears down to 0) I'll update again. Due to the speed, I have no reason to use an Iron Pickaxe any longer.

Update (Edit 3): A steel pickaxe will return 15 scrap iron when scrapped, and costs 20 scrap iron to make (again 75%). It requires 5 forged steel to produce, each of which requires 20 "forge iron". So thats 100 "forge iron" (not Forged Iron) which requires 20 scrap metal in total. It's still worth scrapping and building a better one than repairing it, because for me, my tool smithing skill goes up all the time for other things, and I'd rather spend the 5 additional scrap iron and build a better one that mines faster. For example, the first Steel Pickaxe I made was quality 263. By the time that ran out (granted I wasn't mining constantly), my skill increased enough so that my 2nd one was quality 419. Huge difference.

I think the current definitive answer to this is you don't lose the repair penalty.

I've been researching this as well, and there is no information on the Wiki or any other source that would indicate that the repair penalty will be 0 at any point.

According to this discussion thread on the steam community, apparently you can modify the xml file which will remove the repair penalty. Now, how/where to do this is not explained.

I think the repair penalty is invoking a real world survival technique. It will eventually just break over time, regardless of how many repairs you to do it.

For information on how much durability is restored with a specific repair item you can visit this wiki page.

I honestly don't think the wiki is up to day with the current alpha release of the game. Unfortunately they do not have the formulas posted yet on how the repairs work.

You can see the formulas on how much durability is removed from an item on this page. This tells me that they may include the calculations for repairing items eventually.