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What is the difference between capital and deductible expenses?

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Question
What is the difference between capital and deductible expenses?

Answer

To help you distinguish between capital and deductible expenses, several different items are discussed below.

Business Motor Vehicles
You usually capitalize the cost of a motor vehicle you buy to use in your business. You can recover its cost through annual deductions for depreciation.

There are dollar limits on the depreciation you can claim each year on passenger automobiles used in your business. See Publication 463 at http://www.irs.gov.

Repairs you make to your business vehicle are deductible expenses. However, amounts you pay to recondition and overhaul a business vehicle are capital expenses.

Roads and Driveways
The costs of building a private road on your business property and the cost of replacing a gravel driveway with a concrete one are capital expenses you may be able to depreciate. The cost of maintaining a private road on your business property is a deductible expense.

Tools
Unless the uniform capitalization rules apply, amounts spent for tools used in your business are deductible expenses if the tools have a life expectancy of less than 1 year.

Machinery parts
Unless the uniform capitalization rules apply, the cost of replacing short-lived parts of a machine to keep it in good working condition and not add to its life is a deductible expense.

Heating equipment
The cost of changing from one heating system to another is a capital expense and not a deductible expense.


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Views: 672 Created on: Jun 15, 2013
Date updated: Nov 10, 2014

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