Examples of Capital Expenditures

To assist you with your deduct-or-capitalize analysis, we've put together the following list of items that the IRS or the courts have determined to be capital expenditures under certain circumstances.

Tip

The IRS has issued new regulations in this area that generally apply to tax years beginning on or after January 1, 2014. But, for 2012 and 2013, it also provided taxpayers with the ability to elect certain regulations. The best choice for each taxpayer depends on the taxpayer's unique situation. Consult your advisor to determine which approach would be best for you and your business.

abstracts or title costs

appraisal costs paid in obtaining possession of premises

asbestos removal costs

author's publishing costs

basement repair and waterproofing

boiler patching and welding costs

burglar alarm installation charges

business facility improvement costs (for example: waterproofing; replacing a roof; planning, designing, and constructing an addition; remodeling costs)

cable replacement costs upon sudden failure

credit card, membership fees

display cases, remodeling costs

drainage costs

electric wiring, costs (new wiring, replacement, and rearrangement)

electrical system replacement costs

Federal Communications Commission (FCC) license preparation fees

fire escapes

flood protection costs (such as costs of raising floors, or rearranging bins)

insulation costs

irrigation system costs

merger negotiation costs

mutual fund setup costs incurred by investment advisors

office, cost of changing location and equipment

package design costs

performance bond premiums

Security Exchange and Commission (SEC) statement preparation cost

settlement costs for threatened lawsuit

well (water) costs

zoning change costs that increase the value of property beyond the tax year

Warning

Remember that the same item that was a deductible expense to one taxpayer might be a capital expenditure to another.

That's mainly because the deduct-or-capitalize question does not just involve what was purchased, but also whether its benefits will be expected to last for more than one year. If two taxpayers use an identical item in different ways in their businesses, the item may represent a capital expenditure to one, but a currently deductible expense to the other.