Capital Expenses

You must capitalize some costs (rather than deduct as an expense).  These costs are called capital expenses.  Capital expenses are considered assets of your business.  Capital assets (exceptions exist) have to be depreciated and thus deducted over their useful life.

Examples of capital assets are equipment, furniture, computer equipment, vehicles, trucks, improvements to a building or lease and buildings.

Building and lease improvements have to be capitalized (as opposed to being expensed) if the improvement adds value to the asset, appreciably lengthens the life of the asset, or adapts it to a different use. Thus, an improvement is much different than a repair.  Repairs merely maintain property and keep it in an efficient operating condition.  Repairs of equipment or improvements that merely keep the item in it’s normal operation condition, do not need to be capitalized.  Thus, the decision whether a cost is an improvement or a repair can sometimes be subjective.