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According to the Business Dictionary, capital expenditures are expenses incurred to acquire or upgrade productive assets. These assets can include buildings, equipment, vehicles, and machinery. The purpose of a capital expenditure is to increase the productivity of a company for more than one accounting period.
Upgrades and repairs
Real estate, computers, and vehicles are items that have a useful life of several years and therefore qualify as capital expenditures. Expenses that extend the useful life of an asset can also be considered capital expenses. For example, the installation of air conditioning in a facility adds value to the property for more than one year, and the expense can be depreciated for tax purposes for more than 39 years. However, if the air conditioning system needs to be repaired, it will be considered a repair or maintenance expense and not a capital expense.
Types
According to the Tax Guide, some capital expenditures allowed by the Internal Revenue Service (IRS) include asbestos removal, installation of burglar alarms, zoning costs that increase the value of the property and fire escapes. Even less tangible capital expenditures such as author publishing costs and appraisal costs are allowed to purchase a property.
Expense deduction
According to the IRS, some capital expenses must be depreciated over a specified number of years and others can be taken as a business expense deduction (section 179) in the year the expense was incurred. Bonus depreciation and increased limits are offered to business owners through the Recovery and Reinvestment Act of 2009. Bonus depreciation includes a 50 percent depreciation allowance and a 179 deduction of up to $ 250,000 per the cost of machinery, equipment, furniture and vehicles that have entered service in the previous year.