- 30 - 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 thePage: Previous 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 Next
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