Publication 535 |
2000 Tax Year |
Capitalizing Rent Expenses
Under the uniform capitalization rules, you have to capitalize the
direct costs and part of the indirect costs for production or resale
activities.
Generally, you are subject to the uniform capitalization rules if
you do any of the following in the course of a trade or business or an
activity carried on for profit.
- Produce real or tangible personal property for use in the
business or activity.
- Produce real or tangible personal property for sale to
customers.
- Acquire property for resale. However, this rule does not
apply to personal property if your average annual gross receipts for
the 3 previous tax years were not more than $10 million.
Indirect costs include amounts incurred for renting or leasing
equipment, facilities, or land.
Example 1.
You rent construction equipment to build a storage facility. You
must capitalize as part of the cost of the building the rent you paid
for the equipment. You recover your cost by claiming a deduction for
depreciation on the building.
Example 2.
You rent space in a facility to conduct your business of
manufacturing tools. You must include the rent you paid to occupy the
facility in the cost of the tools you produce.
More information.
For more information, see the regulations under section 263A of the
Internal Revenue Code.
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