Capitalization is the proper treatment for expenditures incurred in new construction, for additions to existing buildings or for installations of material components to buildings or equipment.

The following expenditures need to be capitalized and depreciated:

  • Improvements that “put” property in a better operating condition
    • Restoration of the property to a “like new” condition
    • Addition of new or replacement components or material sub-components
    • Upgrades or modifications
    • Enhancement of the value of the property in the nature of a betterment or improvement
    • Extension of the useful life of the property
    • Improvement of the efficiency, quality, strength and/or capacity of the property
    • Amelioration of a material condition or defect
    • Adaptation of the property to a new use
    • Rehabilitation

Repairs

The following expenditures can be booked as a current deduction:

  • Improvement that “keep” property in efficient operating condition
    • Restoration of the property to its previous condition
    • Protection of the underlying property through routine maintenance
    • Incidental Repair to property

 

I created this blog to help understand certain basic aspects of U.S. tax law. Of course, each situation is unique and nothing that is on this site will ever replace the expert advice of a tax professional.

Please do not hesitate to contact me should you have any question

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