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Publication 535

Chapter 7
Costs You Can Deduct or Capitalize(p23)

What’s New(p23)

Film and television and live theatrical production costs.(p23)
Qualified film, television, or live theatrical productions acquired and placed in service after September 27, 2017, may be eligible for the special depreciation allowance. See Film and Television Production Costs, later.


This chapter discusses costs you can elect to deduct or capitalize.
You generally deduct a cost as a current business expense by subtracting it from your income in either the year you incur it or the year you pay it.
If you capitalize a cost, you may be able to recover it over a period of years through periodic deductions for amortization, depletion, or depreciation. When you capitalize a cost, you add it to the basis of property to which it relates.
A partnership, corporation, estate, or trust makes the election to deduct or capitalize the costs discussed in this chapter except for exploration costs for mineral deposits. Each individual partner, shareholder, or beneficiary elects whether to deduct or capitalize exploration costs.
You may be subject to the alternative minimum tax (AMT) if you deduct certain research and experimental, intangible drilling, exploration, development, circulation, or business organizational costs.
For more information on the AMT, see the instructions for the following forms.
  • Form 6251, Alternative Minimum Tax—Individuals.
  • Form 4626, Alternative Minimum Tax—Corporations.


Useful items

You may want to see:

 544 Sales and Other Dispositions of Assets
Form (and Instructions)
 Schedule C (Form 1040): Profit or Loss From Business (Sole Proprietorship)
 3468: Investment Credit
 6765: Credit for Increasing Research Activities
 8826: Disabled Access Credit
 T (Timber): Forest Activities Schedule
See chapter 12 for information about getting publications and forms.

Carrying Charges(p23)

Carrying charges include the taxes and interest you pay to carry or develop real property or to carry, transport, or install personal property. Certain carrying charges must be capitalized under the uniform capitalization rules. (For information on capitalization of interest, see chapter 4.) You can elect to capitalize carrying charges not subject to the uniform capitalization rules, but only if they are otherwise deductible.
You can elect to capitalize carrying charges separately for each project you have and for each type of carrying charge. Your election is good for only 1 year for unimproved and unproductive real property. You must decide whether to capitalize carrying charges each year the property remains unimproved and unproductive. For other real property, your election to capitalize carrying charges remains in effect until construction or development is completed. For personal property, your election is effective until the date you install or first use it, whichever is later.

How to make the election.(p23)

To make the election to capitalize a carrying charge, attach a statement to your original tax return for the year the election is to be effective indicating which charges you are electing to capitalize. However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Attach the statement to the amended return and write "Filed pursuant to section 301.9100-2" on the statement. File the amended return at the same address you filed the original return.