Transcription of Capitalization , Amortization, and Depreciation
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Capitalization , Amortization, and Depreciation
Capitalization , amortization , and Depreciation Introduction In general, expenses are deductible if allowed by a specific code section. Capital expenditures, in contrast, are not deductible; instead, they must be added to the basis of an asset. From there, they may or may not result in future Depreciation or amortization , depending on the type of asset. For example, the cost of land must be capitalized and is never subject to Depreciation or amortization recovery. In contrast, five years worth of pre-paid insurance must also be capitalized; however, it may then be amortized over the five-year life. These very simple rules are subject to some controversy and require much refinement. The difference between an expense and a capital expenditure is sometimes obvious.
discussed below, Treasury Regulation 1.263(a)-4(f),2 promulgated in January, 2004, casts serious doubt on the continued validity of the prior rule. The historic critical issue was …
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