Podcast
Questions and Answers
Which of the following costs must be capitalized when constructing real or tangible personal property?
Which of the following costs must be capitalized when constructing real or tangible personal property?
- Permits for construction (correct)
- Selling costs allocated to the property
- Research and development expenses
- Advertising expenses related to the project
What costs are allocated to land when demolishing a structure?
What costs are allocated to land when demolishing a structure?
- Future enhancement costs of the land
- Adjusted basis of the structure plus demolition costs (correct)
- Excess insurance premiums
- Operating expenses during demolition
Which of the following is an example of an indirect cost that should not be capitalized?
Which of the following is an example of an indirect cost that should not be capitalized?
- Marketing costs (correct)
- Equipment rental fees
- Construction period interest
- Architect fees
Under which circumstance do uniform capitalization rules generally not apply?
Under which circumstance do uniform capitalization rules generally not apply?
Which of the following expenses is specifically allowed as a deduction rather than being capitalized?
Which of the following expenses is specifically allowed as a deduction rather than being capitalized?
Flashcards
Uniform Capitalization Rules
Uniform Capitalization Rules
Rules requiring capitalization of certain costs related to property construction or acquisition for business use.
Costs to Capitalize
Costs to Capitalize
Costs necessary to prepare property, including direct and allocable indirect costs like permits and materials.
Demolition Costs Allocation
Demolition Costs Allocation
Costs of demolition are added to the land’s basis, not to the new structure’s cost.
Exceptions to Uniform Capitalization
Exceptions to Uniform Capitalization
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Indirect Costs Exclusion
Indirect Costs Exclusion
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Study Notes
Uniform Capitalization Rules
- Costs of constructing or acquiring property for use in business or sale are capitalized.
- Direct and most allocable indirect costs related to preparing property for use are included, such as permits, materials, equipment rental, service compensation (minus work opportunity credit), and architect fees.
- Demolition costs and the adjusted basis of the structure being demolished are allocated to the land.
- Construction period interest and taxes are part of the building cost.
- Indirect costs like marketing, selling, advertising, and various research costs are not capitalized.
- Companies with average annual gross receipts of less than $29 million for the past 3 years aren't subject to uniform capitalization rules
- Uniform capitalization rules don't apply to personal-use property.
- Qualified creative expenses for freelance writers, photographers, or artists are excluded.
- Property produced under long-term contracts are also excluded.
- Deductible research and development expenses are not subject to the rules.
- Intangible drilling and development costs, timber, ornamental trees (over 6 years old), and animals are excluded.
- Selling, marketing, advertising, and distribution costs are excluded.
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