Definition of Capital Expenditure

Capital expenditures are long-term investments.

According to the Business Dictionary, capital expenditures are expenditures to acquire or upgrade productive assets. These assets might include buildings, equipment, vehicles and machinery. The purpose of a capital expenditure is to increase the productivity of an enterprise for more than one accounting period.

Upgrades and Repairs

Real estate, computers and vehicles are items that have a multiyear life span and thus qualify as capital expenditures. Expenditures that add to the useful life of an asset can also be capital expenditures. For example, installing air conditioning in a facility adds to the value of the property for more than one year, and the expense can be depreciated for tax purposes over 39 years. If the air conditioning system needs to be repaired, however, that will be regarded as a repair or maintenance expense and not a capital expenditure.

Types

According to the Tax Guide, some capital expenditures allowed by the Internal Revenue Service (IRS) include asbestos removal, burglar alarm installation, zoning change costs that increase property value and fire escapes. Even less tangible capital expenditures such as author's publishing costs and costs of appraisals to obtain a property are allowed.

Expense Deducation

According to the IRS, some capital expenditures must be depreciated over a set number of years and others can be taken as a business expense deduction (Section 179) in the year in which the expense was incurred. Business owners are being offered bonus depreciation and increased limits through the American Recovery and Reinvestment Act of 2009. Bonus depreciation includes a 50 percent depreciation allowance and a 179 deduction up to $250,000 for the cost of machinery, equipment, furniture and vehicles placed in service in the preceding year.

References

• Tax Guide: Capital Expenses
• IRS: Business Expenses
• Business Dictionary: Capital Expenditure
• IRS: Bonus Depreciation Section 179