- 11 -
Sparky (dog) 150
Bubbles (dog) 150
Total 5,500
Winston was the offspring of one of petitioner's foals. There is
no record of how Midnight and Bubbles were acquired.
OPINION
Whether Petitioner Must Capitalize Costs Related to Buildings
It is conceded by respondent that petitioner incurred costs
for the Rhodes and Whitefeather properties in the amounts listed
on her 1991 tax return. The issue is whether petitioner must
capitalize those costs. "The line of demarcation between
deductible repairs and additions to capital is, of course,
obscure." Stoeltzing v. Commissioner, 266 F.2d 374, 376 (3d Cir.
1959), affg. T.C. Memo. 1958-111.
Amounts expended for ordinary and necessary incidental
repairs and maintenance may be deducted by a cash basis taxpayer
when paid, while amounts incurred to permanently improve property
or increase its value must be capitalized and depreciated over
the useful life of the improvement. Sec. 162(a); secs. 1.162-4,
1.263(a)-1(b), Income Tax Regs. The Court of Appeals for the
Ninth Circuit has summarized the difference as:
The often-litigated distinction between repair expenses
and capital improvements has been characterized as the
difference between "keeping" and "putting" a capital
asset in good condition:
The test which normally is to be applied
is that if the improvements were made to "put"
the particular capital asset in efficient
operating condition, then they are capital in
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