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4. Expenditures on Gate and Roof
Respondent disallowed deductions claimed by Lakeview as
repair expenses that included $3,400 for the replacement of a
roof and $2,000 for the replacement of a fence gate. We agree
with respondent that these expenses were capital in nature and
not currently deductible.
Costs of repairs which keep property used in a trade or
business in an ordinarily efficient operating condition may be
deducted as an ordinary and necessary business expense under
section 162. Sec. 1.162-4, Income Tax Regs. Repairs in the
nature of replacements, and costs that appreciably prolong the
useful life of property, or that materially add to its value, are
not deductible but rather must be capitalized. Id. The
determination of whether an expenditure is deductible or must be
capitalized is a question of fact, and distinctions drawn "are
those of degree and not of kind". INDOPCO, Inc. v. Commissioner,
supra at 86. Although a repair adds value to unsound property,
"The proper test is whether the expenditure materially enhances
the value, use, life expectancy, strength, or capacity as
compared with the status of the asset prior to the condition
necessitating the expenditure." Plainfield-Union Water Co. v.
Commissioner, 39 T.C. 333, 338 (1962).
Petitioner did not repair the gate; he replaced it.
Ordinarily, a replacement constitutes a capital expenditure, but
petitioner argues that because the gate is a part of the fence,
replacement merely restored the fence to its prior condition and
did not prolong its life. Respondent takes the position that the
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