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Uniform
Capitalization Rules
Under
the uniform capitalization rules, you must capitalize
the direct costs and part of the indirect costs
for production or resale activities. Include
these costs in the basis on property you produce
or acquire for resale, rather than claiming them
as a current deduction. You recover the costs
through depreciation, amortization, or cost of
goods sold when you use, sell, or otherwise dispose
of the property.
Activities
subject to the rules
You
may be subject to the uniform capitalization rules
if you do any of the following in the course of
a business or an activity carried on for profit.
- Produce
real or tangible personal property for use in
the business or activity. For this purpose,
tangible personal property includes a film,
sound recording, videotape, book, or similar
property.
- Produce
real or tangible personal property for sale
to customers.
- Acquire
property for resale.
However,
these rules do not apply to the following property:
- Personal
property you acquire for resale if your average
annual gross receipts are $10 million or less
for the three prior tax years.
- Property
you produce if you meet either of the following
conditions:
(a) Your indirect costs of producing
the property are $200,000 or less.
(b) You use the cash method of accounting
and do not account for inventories.
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