- 14 -
Such an amount "is a capital expenditure that is taken into
account through inclusion in inventory costs or a charge to
capital accounts or basis". Sec. 1.263(a)-1(b), Income Tax Regs.
Within the scope of section 263(a)(1) are those amounts paid
or incurred (1) to add to the value, or substantially prolong the
useful life, of property owned by the taxpayer, or (2) to adapt
property to a new or different use. See sec. 1.263(a)-1(b),
Income Tax Regs. However, section 1.263(a)-1(b), Income Tax
Regs., specifically recognizes that "Amounts paid or incurred for
incidental repairs and maintenance of property are not capital
expenditures * * *. See section 162 and � 1.162-4."
Thus an expense which is "incidental" is currently
deductible and is not a capital expenditure. If the repair is an
improvement or replacement, or if it increases the property's
value or substantially prolongs its useful life, it is capital in
nature and is not currently deductible. See Wolfsen Land &
Cattle Co. v. Commissioner, 72 T.C. 1, 14 (1979).
An important factor in determining whether the appropriate
tax treatment is immediate deduction or capitalization is the
taxpayer's realization of benefits beyond the year in which the
expenditure is incurred. See INDOPCO, Inc. v. Commissioner, 503
U.S. 79, 87 (1992); United States v. Wehrli, 400 F.2d 686, 689
(10th Cir. 1968). This is not an absolute rule, however, as the
benefits of expenditures considered to be currently deductible
Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 NextLast modified: May 25, 2011