Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. You include these costs in the basis of property you produce or acquire for resale rather than claiming them as a current deduction. You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property.

Indirect costs include premiums for insurance on your plant or facility, machinery, equipment, materials, property produced, or property acquired for resale.

Uniform capitalization rules. You may be subject to the uniform capitalization rules if, in your trade or business or an activity carried on for profit, you do any of the following.

1. Produce real property or tangible personal property for use in the business or activity. For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property.
2. Produce real property or tangible personal property for sale to customers.
3. Acquire property for resale.

However, these rules do not apply to the following property.

1. Personal property you acquire for resale if your average annual gross receipts are $10 million or less for the 3 prior tax years.
2. Property you produce if you meet either of the following conditions.
1. Your indirect costs of producing the property are $200,000 or less.
2. You treat inventoriable items as materials and supplies that are not incidental. For more information, see Revenue Procedure 2001-10 in Internal Revenue Bulletin No. 2001-2.

More information. For more information on these rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A.

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