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expenditure.
Section 162(a) allows the deduction of all ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on a trade or business. The cost of incidental repairs
to property is deductible if those repairs neither materially add
to the value of the property nor appreciably prolong the life of
the property. Sec. 1.162-4, Income Tax Regs. Repairs in the
nature of replacements, to the extent that they arrest
deterioration and appreciably prolong the life of the property,
must generally be capitalized and depreciated in accordance with
section 167. Id. Further, section 263(a) provides that no
deduction shall be allowed for permanent improvements or
betterments made to increase the value of any property.
The issue in this case has been considered previously by
this Court in Oberman Manufacturing Co. v. Commissioner, 47 T.C.
471 (1967). In that case, the Court held that the cost of
removing and replacing roof-covering material (as well as the
cost of inserting an expansion joint in the roof) was a
deductible expense. The Court observed that “it is necessary to
take into consideration the purpose for which an expenditure is
made in order to determine whether such expenditure is capital in
nature or constitutes a current expense.” Id. at 482. The Court
in Oberman Manufacturing Co. further observed that the taxpayer’s
only purpose in having the work done was to prevent leakage and
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Last modified: May 25, 2011