Examples of Capital Expenditures

To assist you with your deduct-or-capitalize analysis, we've put together the following list of items that the IRS or the courts have determined to be capital expenditures under certain circumstances.

Tip The IRS has issued new regulations in this area that generally apply to tax years beginning on or after January 1, 2014. But, for 2012 and 2013, it also provided taxpayers with the ability to elect certain regulations. The best choice for each taxpayer depends on the taxpayer's unique situation. Consult your advisor to determine which approach would be best for you and your business.

• abstracts or title costs
• appraisal costs paid in obtaining possession of premises
• asbestos removal costs
• author's publishing costs
• basement repair and waterproofing
• boiler patching and welding costs
• burglar alarm installation charges
• business facility improvement costs (for example: waterproofing; replacing a roof; planning, designing, and constructing an addition; remodeling costs)
• cable replacement costs upon sudden failure
• copyright development costs
• credit card, membership fees
• display cases, remodeling costs
• drainage costs
• electric wiring, costs (new wiring, replacement, and rearrangement)
• electrical system replacement costs
• Federal Communications Commission (FCC) license preparation fees
• fire escapes
• flood protection costs (such as costs of raising floors, or rearranging bins)
• insulation costs
• irrigation system costs
• merger negotiation costs
• mutual fund setup costs incurred by investment advisors
• office, cost of changing location and equipment
• package design costs
• performance bond premiums
• Security Exchange and Commission (SEC) statement preparation cost
• settlement costs for threatened lawsuit
• well (water) costs
• zoning change costs that increase the value of property beyond the tax year

Warning Remember that the same item that was a deductible expense to one taxpayer might be a capital expenditure to another. That's mainly because the deduct-or-capitalize question does not just involve what was purchased, but also whether its benefits will be expected to last for more than one year. If two taxpayers use an identical item in different ways in their businesses, the item may represent a capital expenditure to one, but a currently deductible expense to the other.

© 2024 Wolters Kluwer. All Rights Reserved.