Capital Expenditures

Question 1

Tax Treatment of Capital Expenditures

Answer 1

Generally NOT currently deductible

Instead, cost either creates or adds to taxpayer’s basis in an asset

Question 2

Depreciation

Answer 2

To write off or deduct the cost over some defined period of time, generally equal to asset’s useful life

Question 3

What Type of Property Does Depreciation Apply to?

Answer 3

TANGIBLE property used in trade or business

Asset must be subject to wear and tear

Ex: Building, equipment, furniture

NOT LAND

Question 4

Amortization

Answer 4

Depreciation for INTANGIBLE property used in trade or business

Ex: Goodwill, patents, copyrights, franchise, license, covenant not to compete

Question 5

Amortization: Timing

Answer 5

Generally over a 15 YEAR PERIOD

Cost is recovered ratably over that time