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Capital expenses
Capital expenses and taxes
For tax purposes, capital expenditures are costs that cannot be deducted in the year in which they are paid or incurred, and must be capitalized. The general rule is that if the property acquired has a useful life longer than the taxable year, the cost must be capitalized. The capital expenditure costs are then amortized or depreciated over the life of the asset in question.
Included in capital expenditures are amounts spent on:
- acquiring fixed assets
- fixing problems with an asset that existed prior to acquisition
- preparing an asset to be used in business
- legal costs of establishing or maintaining one's right of ownership in a piece of property
- restoring property or adapting it to a new or different use
- starting a new business
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