Capital expense is payment, or debt incurred, for the acquisition, production, or improvement of a unit of property. You include the expense in the basis of the asset. Uniform capitalization rules also require you to capitalize or include in inventory certain other expenses.
Capital expenses are generally not deductible, but they may be depreciable. However, you can elect to deduct certain capital expenses, such as the following.
• The cost of fertilizer, lime, etc. (See Fertilizer and Lime under Deductible Expenses, earlier.)
• Soil and water conservation expenses. (See chapter 5.)
• The cost of property that qualifies for a deduction under section 179. (See chapter 7.)
• Business start-up costs. (See Business start-up and organizational costs, later.)
• Forestation and reforestation costs. (See Forestation and reforestation costs, later.)
Generally, the costs of the following items, including the costs of material, hired labor, and installation, are capital expenses.
1. Land and buildings.
2. Additions, alterations, and improvements to buildings, etc.
3. Cars and trucks.
4. Equipment and machinery.
6. Draft, breeding, sport, and dairy livestock.
7. Repairs to machinery, equipment, trucks, and cars that prolong their useful life, increase their value, or adapt them to different use.
8. Water wells, including drilling and equipping costs.
9. Land preparation costs, such as: a. Clearing land for farming; b. Leveling and conditioning land; c. Purchasing and planting trees; d. Building irrigation canals and ditches; e. Laying irrigation pipes; f. Installing drain tile; g. Modifying channels or streams; h. Constructing earthen, masonry, or concrete tanks, reservoirs, or dams; and i. Building roads