Depreciation And Cost-Recovery Concepts - Expensing Policy

Expensing Policy Capital Expenditures versus Repairs:

Repairs:
A business repair generally does not prolong the life or add value to the property, and it typically maintains the property in its normal operating state. For these reasons it is deductible as a business expense.

Capital Expenditures:
The expense is not deductible as a business expense, but instead the cost is capitalized and depreciated over the property's useful life.

Capital Expenditures include:

  1. Adds value to the property
  2. Substantially prolongs the useful life of the property
  3. General plans of improving, altering or renovating the property

Business Use Versus Personal Use:
- If business use of the listed asset is greater than 50%, then the owner may use the statutory percentages for depreciation.
- If business use of the listed asset is equal or less than 50%, then the owner must use straight line depreciation.

Section 179 Deduction


Related Articles
  1. Investing

    How Does Depreciation Reduce My Tax Bill?

    How the depreciation tax rule can assist real estate investors.
  2. Investing

    How Rental Property Depreciation Works

    It's a bit tricky, but a valuable tool to make your investment pay off.
  3. Options & Futures

    Use Real Estate To Put Off Tax Bills

    Find out how you can build wealth and reduce your taxes.
  4. Taxes

    Getting U.S. Tax Deductions On Foreign Real Estate

    If your home or second home is not in the United States, you can still get U.S. tax deductions. How many and what kind depends on whether you also rent it.
  5. Home & Auto

    The Complete Guide To Becoming A Landlord: Becoming A Landlord

    Financial BenefitsAs a landlord, you have the opportunity to earn income from your real estate investment. While your property ideally appreciates in value over time, the income that you receive ...
  6. Fundamental Analysis

    How to Calculate the OER

    An operating expense ratio describes a property’s operating expense compared to the income it generates.
  7. Budgeting

    Vacation Property Walkthrough: Renting Out A Vacation Home

    People who rent out a vacation home may do so to offset the expenses of ownership or to generate income (ideally a profit). There are several important considerations when deciding to rent out ...
  8. Investing Basics

    Capitalization Rate

    Capitalization Rate is a financial term most commonly used in the real estate investment industry. It is often simply called the Cap Rate.
  9. Home & Auto

    Tax Rules For Renting Out Your Vacation Home

    Here's a rundown of the specific tax rules that apply to homeowners renting out a vacation property.
  10. Investing

    Buying Your First Investment Property? Top 10 Tips

    Check this list if you are thinking of making a purchase and becoming a landlord.
RELATED TERMS
  1. Listed Property

    A specific class of depreciable property that is subject to a ...
  2. Unit of Production Method

    A depreciation procedure used for property that is not in continuous ...
  3. Form 4562: Depreciation and Amortization

    A tax form distributed by the Internal Revenue Service (IRS) ...
  4. Section 1231 Property

    A tax term relating to depreciable business property that has ...
  5. Form 4797

    A tax form distributed by the Internal Revenue Service (IRS) ...
  6. Fully Depreciated Asset

    A property, plant, or piece of equipment which, for accounting ...
RELATED FAQS
  1. Why is it that under some circumstances, capital expenditure cannot be tax-deducted ...

    Understand the meaning of capital expenditures, and learn what the implications are for companies resulting from tax laws ... Read Answer >>
  2. What is the difference between capital and operating expenses?

    Learn about the types of expenses that a company incurs. Understand the difference between capital and operating expenses, ... Read Answer >>
  3. Are capital assets normally immediately expensed or are they amortized/depreciated ...

    Understand the distinction between capital assets and business expenses, and learn whether capital assets are usually expensed ... Read Answer >>
  4. What is the difference between a capital expenditure and a revenue expenditure?

    Understand the difference between a company's capital expenditures and revenue expenditures, and how each expense appears ... Read Answer >>
  5. What are some examples of the main types of capital expenditures (CAPEX)?

    Learn about different expenses with acquiring assets that are considered capital expenditures and should be depreciated over ... Read Answer >>
  6. Why do companies often treat events such as the purchase of an asset or construction ...

    Understand the capitalized costs of fixed assets and learn how they are reflected on a company's balance sheet and income ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center