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Finally, petitioners claimed a $1,820 deduction for the
acquisition of power tools used in Robco activities. Amounts paid
to acquire machinery, equipment, and similar property having a
useful life substantially beyond the taxable year are capital
expenditures and generally are not deductible. Sec. 263(a)(1);
sec. 1.263(a)-2, Income Tax Regs. If the capital expenditure is
for property used in a trade or business or held for the
production of income, the taxpayer may be allowed a deduction for
depreciation under section 167. See, e.g., INDOPCO, Inc. v.
Commissioner, 503 U.S. at 83-84. Alternatively, the cost may be
expensed pursuant to section 179 if the requirements of that
section are satisfied. The cost may not be expensed, however, in
the absence of an election. Sec. 179(c); Visin v. Commissioner,
T.C. Memo. 2003-246; sec. 1.179-5, Income Tax Regs. Furthermore,
section 179 limits the amount of the deduction to the amount of
taxable income derived from the trade or business, although a
disallowed deduction may be carried over to later tax years. Sec.
179(b)(3)(A) and (B). Petitioners did not have taxable income
derived from Robco activities in 2002, and they failed to make any
election under section 179.3 That being the case, petitioners may
3The election would typically be made using Part I, Election
to Expense Certain Tangible Property Under Section 179, of Form
4562, Depreciation and Amortization. Petitioners did not attach
Form 4562 to their return and did not otherwise make an election
under sec. 179.
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Last modified: November 10, 2007