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A. Deductions Generally
A taxpayer may not deduct personal, living, and family
expenses unless the Internal Revenue Code expressly provides
otherwise; e.g., State and local real property taxes are
deductible pursuant to section 164(a)(1). Sec. 262(a). Nor may
a taxpayer deduct capital expenditures; i.e., amounts paid for
new property or for permanent improvements or betterments made to
increase the value of any property or estate. Sec. 263(a)(1).
Instead, 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, supra at
83-84.
Taxpayers generally may deduct expenses that are ordinary
and necessary in carrying on a trade or business under section
162(a), for the production or collection of income under section
212(1), or for the management, conservation, or maintenance of
property held for the production of income under section 212(2).
The statutory prohibitions of sections 262 and 263 regarding
deductibility of personal and capital expenses take precedence
over the allowance provisions of sections 162 and 212.
Commissioner v. Idaho Power Co., 418 U.S. 1, 17 (1974); Sharon v.
Commissioner, 66 T.C. 515, 523 (1976), affd. 591 F.2d 1273 (9th
Cir. 1978).
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