Capitalizing Rent Expenses Under the uniform capitalization rules, you have to capitalizedirect costs and an allocable part of most indirect costs that benefitor are incurred because of production or resale activities. Generally, you are subject to the uniform capitalization rules ifyou do any of the following. Produce real or tangible personal property for use in atrade or business or an activity engaged in for profit. Produce real or tangible personal property for sale tocustomers. Acquire property for resale. However, this rule does notapply to personal property if your average annual gross receipts forthe 3 previous tax years were not more than $10 million. Indirect costs include amounts incurred for renting or leasingequipment, facilities, or land. Example 1.You rent construction equipment to build a storage facility. Youmust capitalize as part of the cost of the building the rent you paidfor the equipment. You recover your cost by claiming a deduction fordepreciation on the building. Example 2.You rent space in a facility to conduct your business ofmanufacturing tools. You must include the rent you paid to occupy thefacility in the cost of the tools you produce. More information.For more information, see the regulations under section 263A of theInternal Revenue Code.