Carrying charges include the taxes and interest you pay to carry or develop real property or to carry, transport, or install personal property. Certain carrying charges must be capitalized under the uniform capitalization rules. (For information on capitalization of interest, see chapter 5.) You can choose to capitalize carrying charges not subject to the uniform capitalization rules, but only if they are otherwise deductible.

You can choose to capitalize carrying charges separately for each project you have and for each type of carrying charge. For unimproved and unproductive real property, your choice is good for only 1 year. You must decide whether to capitalize carrying charges each year the property remains unimproved and unproductive. For other real property, your choice to capitalize carrying charges remains in effect until construction or development is completed. For personal property, your choice is effective until the date you install or first use it, whichever is later.

The costs of research and experimentation are generally capital expenses. However, you can choose to deduct these costs as a current business expense. Your choice to deduct these costs is binding for the year it is made and for all later years unless you get IRS approval to make a change.

If you meet certain requirements, you may choose to defer and amortize research and experimental costs. For information on choosing to defer and amortize these costs, see Research and Experimental Costs in chapter 9.

The costs of developing oil, gas, or geothermal wells are ordinarily capital expenditures. You can usually recover them through depreciation or depletion. However, you can choose to deduct intangible drilling costs (IDCs) as a current business expense. These are certain drilling and development costs for wells in the United States in which you hold an operating or working interest. You can deduct only costs for drilling or preparing a well for the production of oil, gas, or geothermal steam or hot water.

You can choose to deduct only the costs of items with no salvage value. These include wages, fuel, repairs, hauling, and supplies related to drilling wells and preparing them for production. Your cost for any drilling or development work done by contractors under any form of contract is also an IDC. However, see Amounts paid to contractor that must be capitalized, later.

You can also choose to deduct the cost of drilling exploratory bore holes to determine the location and delineation of offshore hydrocarbon deposits if the shaft is capable of conducting hydrocarbons to the surface on completion. It does not matter whether there is any intent to produce hydrocarbons.

If you do not choose to deduct your IDCs as a current business expense, you can choose to deduct them over the 60-month period beginning with the month they were paid or incurred.

The costs of determining the existence, location, extent, or quality of any mineral deposit are ordinarily capital expenditures if the costs lead to the development of a mine. You recover these costs through depletion as the mineral is removed from the ground. However, you can choose to deduct domestic exploration costs paid or incurred before the beginning of the development stage of the mine (except those for oil, gas, and geothermal wells).

You can deduct costs paid or incurred during the tax year for developing a mine or any other natural deposit (other than an oil or gas well) located in the United States. These costs must be paid or incurred after the discovery of ores or minerals in commercially marketable quantities. Development costs include those incurred for you by a contractor. Also, development costs include depreciation on improvements used in the development of ores or minerals. They do not include costs for the acquisition or improvement of depreciable property.

Instead of deducting development costs in the year paid or incurred, you can choose to treat them as deferred expenses and deduct them ratably as the units of produced ores or minerals benefited by the expenses are sold. This choice applies each tax year to expenses paid or incurred in that year. Once made, the choice is binding for the year and cannot be revoked for any reason.

A publisher can deduct as a current business expense the costs of establishing, maintaining, or increasing the circulation of a newspaper, magazine, or other periodical. For example, a publisher can deduct the cost of hiring extra employees for a limited time to get new subscriptions through telephone calls. Circulation costs are deductible even if they normally would be capitalized.

This rule does not apply to the following costs that must be capitalized.

Environmental cleanup (remediation) costs are generally capital expenditures. However, you can choose to deduct these costs as a current business expense if certain requirements (discussed later) are met. This special tax treatment is generally available for qualified environmental cleanup costs you pay or incur before January 1, 2006.

Business start-up and organizational costs are generally capital expenditures. Costs paid or incurred before October 23, 2004, must be capitalized unless an election is made to amortize them. You can choose to deduct up to $5,000 of business start-up and $5,000 of organizational costs, paid or incurred after October 22, 2004, as a current business expense. The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized. For information about amortizing start-up and organizational costs, see chapter 9.

Start-up costs include any amounts paid or incurred in connection with creating an active trade or business or investigating the creation or acquisition of an active trade or business. Organizational costs include the costs of creating a corporation. For more information on start-up and organizational costs, see chapter 9.

Reforestation costs paid or incurred before October 23, 2004, must be capitalized unless an election is made to amortize them. You can choose to deduct up to $10,000 of qualifying reforestation costs paid or incurred after October 22, 2004 for each qualified timber property. The remaining costs can be amortized over an 84-month period. See chapter 9 for more information on amortization of reforestation costs.

Qualifying reforestation costs are the direct costs of planting or seeding for forestation or reforestation. Qualified timber property is property that contains trees in significant commercial quantities. See chapter 9 for more information on qualifying reforestation costs and qualified timber property.

If you retire and remove a depreciable asset in connection with the installation or production of a replacement asset, you can deduct the costs of removing the retired asset. However, if you replace a component (part) of a depreciable asset, capitalize the removal costs if the replacement is an improvement and deduct the costs if the replacement is a repair.

The cost of an improvement to a business asset is normally a capital expense. However, you can choose to deduct the costs of making a facility or public transportation vehicle more accessible to and usable by those who are disabled or elderly. You must own or lease the facility or vehicle for use in connection with your trade or business.

A facility is all or any part of buildings, structures, equipment, roads, walks, parking lots, or similar real or personal property. A public transportation vehicle is a vehicle, such as a bus or railroad car, that provides transportation service to the public (including service for your customers, even if you are not in the business of providing transportation services).

You cannot deduct any costs that you paid or incurred to completely renovate or build a facility or public transportation vehicle or to replace depreciable property in the normal course of business.