A 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. See chapters 2 and 6 for more information.
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.)
The ordinary and necessary costs of operating a farm for profit are deductible business expenses. “Ordinary” means what most farmers do, and “necessary” means what is useful and helpful in farming. Schedule F, Part II, lists some common farm expenses that are typically deductible. This chapter discusses many of these expenses, as well as others not listed on Schedule F.