Andrew Wesley Frank & Joy Mary Frank - Page 16

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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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