Capital Expenses A capital expense is a payment, or a debt incurred, for theacquisition, improvement, or restoration of an asset that is expectedto last more than one year. You include the expense in the basis ofthe asset. Uniform capitalization rules also require you to capitalizeor include in inventory certain other expenses. See chapters 3and 7. Capital expenses are generally not deductible, but they may bedepreciable. However, you can elect to deduct certain capitalexpenses, such as the following. The cost of fertilizer, lime, etc. (see Fertilizer andLime under Deductible Expenses, earlier). Soil and water conservation expenses (see chapter 6). The cost of property that qualifies for a deduction undersection 179 (see chapter 8). The cost of qualifying clean-fuel vehicle property andclean-fuel vehicle refueling property (see chapter 15 in Publication 535). The costs of the following items, including the costs of material,hired labor, and installation, are capital expenses. Business start-up costs. (See Going Into Businessin chapter 8.) Land and buildings. Additions, alterations, and improvements to buildings,etc. Cars and trucks. Equipment and machinery. Fences. Breeding, dairy, and draft livestock. Reforestation. Repairs to machinery, equipment, cars, and trucks thatprolong their useful life, increase their value, or adapt them todifferent use. Water wells, including drilling and equipping costs. Land preparation, such as: Clearing land for farming, Leveling and conditioning land, Purchasing and planting trees, Building irrigation canals and ditches, Laying irrigation pipes, Installing drain tile, Modifying channels or streams, Constructing earthen, masonry, or concrete tanks,reservoirs, or dams, and Building roads. Crop production expenses.The uniform capitalization rules generally require you tocapitalize expenses incurred in producing plants. However, except forcertain taxpayers required to use an accrual method of accounting, thecapitalization rules do not apply to plants with a preproductiveperiod of 2 years or less. For more information, see UniformCapitalization Rules in chapter 7. Timber.Capitalize the cost of acquiring timber. Do not include the cost ofland in the cost of the timber. You must generally capitalize directcosts incurred in reforestation. These costs include the following. Site preparation costs, such as: Girdling, Applying herbicide, Baiting rodents, and luxury hotels in AlbuferiaClearing and controlling brush. The cost of seed or seedlings. Labor and tool expenses. Depreciation on equipment used in planting orseeding. Costs incurred in replanting to replace lostseedlings. You can choose to capitalize certain indirect reforestationcosts. These capitalized amounts are your basis for the timber. Recoveryour basis when you sell the timber or take depletion allowances whenyou cut the timber. However, you may recover a limited amount of yourcosts for forestation or reforestation before cutting the timberthrough amortization deductions. For more information, seeDepletion and Amortization in chapter 8. Envelope: For more information about timber, see Agriculture Handbook Number708, Forest Owners' Guide to the Federal Income Tax. Copiesare $12 each and are available from the U.S. Government PrintingOffice. Place your order using Stock#001-000-04621-7. The address and telephone numberare: Superintendent of Documents U.S. Government Printing Office P.O. Box 371954 Scheveningen ReservationsPittsburgh, PA 15250-7954 (202) 512-1800 Christmas tree cultivation.If you are in the business of planting and cultivating Christmastrees to sell when they are more than 6 years old, capitalize expensesincurred for planting and stump culture and add them to the basis ofthe standing trees. Recover these expenses as part of your adjustedbasis when you sell the standing trees or as depletion allowances whenyou cut the trees. For more information, see Timber depletionunder Depletion in chapter 8. You can deduct as business expenses the costs incurred for shearingand basal pruning of these trees. Expenses incurred for silviculturalpractices, such as weeding or cleaning, and noncommercial thinning arealso deductible as business expenses. Capitalize the cost of land improvements, such as road grading,ditching, and fire breaks, that have a useful life beyond the taxyear. If the improvements do not have a determinable useful life, addtheir cost to the basis of the land. The cost is recovered when yousell or otherwise dispose of it. If the improvements have adeterminable useful life, recover their cost through depreciation.Capitalize the cost of equipment and other depreciable assets, such asculverts and fences, to the extent you do not use them in plantingChristmas trees. Recover these costs through depreciation.