26 USC 263 - Capital expenditures

U.S Code last checked for updates: May 02, 2024

§ 263.

Capital expenditures

(a)

General rule

No deduction shall be allowed for—

(1)

Any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate. This paragraph shall not apply to—

(A)

expenditures for the development of mines or deposits deductible under section 616,

(B)

research and experimental expenditures deductible under section 174,

(C)

soil and water conservation expenditures deductible under section 175,

(D)

expenditures by farmers for fertilizer, etc., deductible under section 180,

(E)

expenditures for removal of architectural and transportation barriers to the handicapped and elderly which the taxpayer elects to deduct under section 190,

(F)

expenditures for tertiary injectants with respect to which a deduction is allowed under section 193,

(G)

expenditures for which a deduction is allowed under section 179,

(H)

expenditures for which a deduction is allowed under section 179B,

(I)

expenditures for which a deduction is allowed under section 179C,

(J)

expenditures for which a deduction is allowed under section 179D, or

(K)

expenditures for which a deduction is allowed under section 179E.

(2)

Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made.

[(b)

Repealed. Pub. L. 101–508, title XI, § 11801(a)(16), Nov. 5, 1990, 104 Stat. 1388–520]

(c)

Intangible drilling and development costs in the case of oil and gas wells and geothermal wells

(d)

Expenditures in connection with certain railroad rolling stock

[(e)

Repealed. Pub. L. 97–34, title II, § 201(c), Aug. 13, 1981, 95 Stat. 219]

(f)

Railroad ties

(g)

Certain interest and carrying costs in the case of straddles

(1)

General rule

(2)

Interest and carrying charges defined

For purposes of paragraph (1), the term “interest and carrying charges” means the excess of—

(A)

the sum of—

(i)

interest on indebtedness incurred or continued to purchase or carry the personal property, and

(ii)

all other amounts (including charges to insure, store, or transport the personal property) paid or incurred to carry the personal property, over

(B)

the sum of—

(i)

the amount of interest (including original issue discount) includible in gross income for the taxable year with respect to the property described in subparagraph (A),

(ii)

any amount treated as ordinary income under section 1271(a)(3)(A), 1276, or 1281(a) with respect to such property for the taxable year,

(iii)

the excess of any dividends includible in gross income with respect to such property for the taxable year over the amount of any deduction allowable with respect to such dividends under section 243 or 245, and

(iv)

any amount which is a payment with respect to a security loan (within the meaning of section 512(a)(5)) includible in gross income with respect to such property for the taxable year.

For purposes of subparagraph (A), the term “interest” includes any amount paid or incurred in connection with personal property used in a short sale.

(3)

Exception for hedging transactions

(4)

Application with other provisions

(A)

Subsection (c)

(B)

Section 1277 or 1282

(h)

Payments in lieu of dividends in connection with short sales

(1)

In general

If—

(A)

a taxpayer makes any payment with respect to any stock used by such taxpayer in a short sale and such payment is in lieu of a dividend payment on such stock, and

(B)

the closing of such short sale occurs on or before the 45th day after the date of such short sale,

then no deduction shall be allowed for such payment. The basis of the stock used to close the short sale shall be increased by the amount not allowed as a deduction by reason of the preceding sentence.

(2)

Longer period in case of extraordinary dividends

(3)

Extraordinary dividend

(4)

Special rule where risk of loss diminished

The running of any period of time applicable under paragraph (1)(B) (as modified by paragraph (2)) shall be suspended during any period in which—

(A)

the taxpayer holds, has an option to buy, or is under a contractual obligation to buy, substantially identical stock or securities, or

(B)

under regulations prescribed by the Secretary, a taxpayer has diminished his risk of loss by holding 1 or more other positions with respect to substantially similar or related property.

(5)

Deduction allowable to extent of ordinary income from amounts paid by lending broker for use of collateral

(A)

In general

Paragraph (1) shall apply only to the extent that the payments or distributions with respect to any short sale exceed the amount which—

(i)

is treated as ordinary income by the taxpayer, and

(ii)

is received by the taxpayer as compensation for the use of any collateral with respect to any stock used in such short sale.

(B)

Exception not to apply to extraordinary dividends

(6)

Application of this subsection with subsection (g)

(i)

Special rules for intangible drilling and development costs incurred outside the United States

In the case of intangible drilling and development costs paid or incurred with respect to an oil, gas, or geothermal well located outside the United States—

(1)

subsection (c) shall not apply, and

(2)

such costs shall—

(A)

at the election of the taxpayer, be included in adjusted basis for purposes of computing the amount of any deduction allowable under section 611 (determined without regard to section 613), or

(B)

if subparagraph (A) does not apply, be allowed as a deduction ratably over the 10-taxable year period beginning with the taxable year in which such costs were paid or incurred.

This subsection shall not apply to costs paid or incurred with respect to a nonproductive well.

(Aug. 16, 1954, ch. 736, 68A Stat. 77; Pub. L. 86–779, § 6(c), Sept. 14, 1960, 74 Stat. 1001; Pub. L. 87–834, § 21(b), Oct. 16, 1962, 76 Stat. 1064; Pub. L. 88–563, § 4, Sept. 2, 1964, 78 Stat. 845; Pub. L. 89–243, § 4(p)(1), (2), Oct. 9, 1965, 79 Stat. 964; Pub. L. 91–172, title VII, § 706(a), Dec. 30, 1969, 83 Stat. 674; Pub. L. 92–178, title I, § 109(b), (c), Dec. 10, 1971, 85 Stat. 509; Pub. L. 94–455, title XVII, § 1701(a), title XIX, §§ 1904(b)(10)(A)(i), 1906(b)(13)(A), title XXI, § 2122(b)(2), Oct. 4, 1976, 90 Stat. 1759, 1817, 1834, 1915; Pub. L. 95–618, title IV, § 402(a), Nov. 9, 1978, 92 Stat. 3201; Pub. L. 96–223, title II, § 251(a)(2)(B), Apr. 2, 1980, 94 Stat. 287; Pub. L. 97–34, title II, §§ 201(c), 202(d)(1), title V, § 502, Aug. 13, 1981, 95 Stat. 219, 221, 327; Pub. L. 97–248, title II, § 204(c)(1), Sept. 3, 1982, 96 Stat. 426; Pub. L. 97–448, title I, § 105(b)(1), title III, § 306(a)(9)(A), Jan. 12, 1983, 96 Stat. 2385, 2403; Pub. L. 98–369, div. A, title I, §§ 56(a), 102(e)(7), (8), July 18, 1984, 98 Stat. 573, 624, 625; Pub. L. 99–514, title IV, §§ 402(b)(1), 411(b)(1), title VII, § 701(e)(4)(D), title XVIII, § 1808(b), Oct. 22, 1986, 100 Stat. 2221, 2225, 2343, 2817; Pub. L. 100–647, title I, § 1007(g)(5), Nov. 10, 1988, 102 Stat. 3435; Pub. L. 101–508, title XI, §§ 11801(a)(16), 11815(b)(3), Nov. 5, 1990, 104 Stat. 1388–520, 1388–558; Pub. L. 105–34, title XVI, § 1604(a)(1), Aug. 5, 1997, 111 Stat. 1097; Pub. L. 108–311, title IV, § 408(a)(10), Oct. 4, 2004, 118 Stat. 1191; Pub. L. 108–357, title III, § 338(b)(1), Oct. 22, 2004, 118 Stat. 1481; Pub. L. 109–58, title XIII, §§ 1323(b)(2), 1331(b)(4), Aug. 8, 2005, 119 Stat. 1015, 1024; Pub. L. 109–432, div. A, title IV, § 404(b)(1), Dec. 20, 2006, 120 Stat. 2956; Pub. L. 113–295, div. A, title II, § 221(a)(34)(D), (41)(G), Dec. 19, 2014, 128 Stat. 4042, 4044; Pub. L. 115–141, div. U, title IV, § 401(a)(60), (61), Mar. 23, 2018, 132 Stat. 1187.)

cite as: 26 USC 263