Current expenses or capital expenses?
A current expense is one that generally reoccurs after a short period. For example, the cost of painting the exterior of a wooden property is a current expense.
A capital expense generally gives a lasting benefit or advantage. For example, the cost of putting vinyl siding on the exterior walls of a wooden property is a capital expense.
Renovations and expenses that extend the useful life of your property or improve it beyond its original condition are usually capital expenses. However, an increase in a property's market value because of an expense is not a major factor in deciding whether the expense is capital or current. To decide whether an amount is a current expense or a capital expense, consider your answers to the questions in the following chart.
|Criteria||Capital expenses||Current expenses|
Does the expense provide a lasting benefit.
|Generally, they give a lasting benefit or advantage. For example, putting vinyl siding on the exterior walls of a wooden property 1 .||Generally, they reoccur after a short period of time. For example, painting the exterior of a wooden house.|
|Does the expense maintain or improve the property.||Generally, they repair and improve a property beyond its original condition. For example, if you replace wooden steps with concrete steps 1 .||Generally, they restore a property to its original condition. For example, repairing wooden steps.|
Is the expense for a part of the property or for a separate asset?
|Generally, they are new assets replacing existing assets that are within the property. For example, buying a compressor to use in your business operation. It applies because a compressor is a separate asset, not part of the building 1 .||Generally, they repair a part of the building. For example, electrical wiring is part of a building. Any amount spent to rewire, as long as the rewiring does not improve the property beyond its original condition, can be claimed as a current expense.|
|What is the value of the expense? (Use this criteria only if you cannot determine whether an expense is capital or current based on the 3 previous criteria.)||Generally, they are of considerable value in relation to the value of the property 1 .||Generally, they are costs for ordinary maintenance that was not done when necessary. You can deduct these expenses as current expense.|
1 - If based on the criteria, the expense is determine to be a capital expense, some special situations might change the way you would usually deduct this expense. For more information on these special situations, go to Capital expenses - Special situations.
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