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loan broker's license was incurred as part of petitioners'
purchase of the Springs Road property.
Petitioners introduced credit report receipts dated June 21,
1991, and September 20, 1992. The words "400 Springs" were
written on the receipts. Petitioners presented one receipt
for a rental application dated July 27, 1992. The words "400
Springs" was written on it. We find that the expense for the
September 20, 1992, report was incurred for a business purpose
because it is dated near the time that petitioners bought the
Springs Road property. Petitioners may deduct the second credit
report and rental application expenses.
Petitioners offered three receipts, dated August 25, 1992,
totaling $30, from the Solano County Assessor/Recorder's office.
The receipts were for recording fees. We conclude that
petitioners may capitalize these expenses because they were
incurred on or near the date that petitioners bought the Springs
Road property. See Thompson v. Commissioner, 9 B.T.A. 1342, 1345
(1928) (recording fees are capital expenses).
4. Whether Petitioners May Deduct or Must Capitalize
Expenses Relating to the Mesa Verde Property
Amounts paid to permanently improve property are capital
expenses. Sec. 263(a). Capital expenses are amounts paid to
increase the value or substantially prolong the useful life of
property. Sec. 1.263(a)-1(b), Income Tax Regs. Courts have
distinguished between a capital expense and a deductible business
expense as follows:
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