Dennis W. Stark - Page 30



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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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