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e-CFR data is current as of January 14, 2021

Title 26Chapter ISubchapter APart 1 → §1.263(a)-0


Title 26: Internal Revenue
PART 1—INCOME TAXES (CONTINUED)


§1.263(a)-0   Outline of regulations under section 263(a).

This section lists the paragraphs in §§1.263(a)-1 through 1.263(a)-3 and §1.263(a)-6.

§1.263(a)-1   Capital expenditures; in general.

(a) General rule for capital expenditures.

(b) Coordination with other provisions of the Internal Revenue Code.

(c) Definitions.

(1) Amount paid.

(2) Produce.

(d) Examples of capital expenditures.

(e) Amounts paid to sell property.

(1) In general.

(2) Dealer in property.

(3) Examples.

(f) De minimis safe harbor election.

(1) In general.

(i) Taxpayer with applicable financial statement.

(ii) Taxpayer without applicable financial statement.

(iii) Taxpayer with both an applicable financial statement and a non-qualifying financial statement.

(2) Exceptions to de minimis safe harbor.

(3) Additional rules.

(i) Transaction and other additional costs.

(ii) Materials and supplies.

(iii) Sale or disposition.

(iv) Treatment of de minimis amounts.

(v) Coordination with section 263A.

(vi) Written accounting procedures for groups of entities.

(vii) Combined expensing accounting procedures.

(4) Definition of applicable financial statement.

(5) Time and manner of making election.

(6) Anti-abuse rule.

(7) Examples.

(g) Accounting method changes.

(h) Effective/applicability date.

(1) In general.

(2) Early application of this section.

(i) In general.

(ii) Transition rule for de minimis safe harbor election on 2012 or 2013 returns.

(3) Optional application of TD 9564.

§1.263(a)-2   Amounts paid to acquire or produce tangible property.

(a) Overview.

(b) Definitions.

(1) Amount paid.

(2) Personal property.

(3) Real property.

(4) Produce.

(c) Coordination with other provisions of the Internal Revenue Code.

(1) In general.

(2) Materials and supplies.

(d) Acquired or produced tangible property.

(1) Requirement to capitalize.

(2) Examples.

(e) Defense or perfection of title to property.

(1) In general.

(2) Examples.

(f) Transaction costs.

(1) In general.

(2) Scope of facilitate.

(i) In general.

(ii) Inherently facilitative amounts.

(iii) Special rule for acquisitions of real property.

(A) In general.

(B) Acquisitions of real and personal property in a single transaction.

(iv) Employee compensation and overhead costs.

(A) In general.

(B) Election to capitalize.

(3) Treatment of transaction costs.

(i) In general.

(ii) Treatment of inherently facilitative amounts allocable to property not acquired.

(iii) Contingency fees.

(4) Examples.

(g) Treatment of capital expenditures.

(h) Recovery of capitalized amounts.

(1) In general.

(2) Examples.

(i) Accounting method changes.

(j) Effective/applicability date.

(1) In general.

(2) Early application of this section.

(i) In general.

(ii) Transition rule for election to capitalize employee compensation and overhead costs on 2012 or 2013 returns.

(3) Optional application of TD 9564.

§1.263(a)-3   Amounts paid to improve tangible property.

(a) Overview.

(b) Definitions.

(1) Amount paid.

(2) Personal property.

(3) Real property.

(4) Owner.

(c) Coordination with other provisions of the Internal Revenue Code.

(1) In general.

(2) Materials and supplies.

(3) Example.

(d) Requirement to capitalize amounts paid for improvements.

(e) Determining the unit of property.

(1) In general.

(2) Building.

(i) In general.

(ii) Application of improvement rules to a building.

(A) Building structure.

(B) Building system.

(iii) Condominium.

(A) In general.

(B) Application of improvement rules to a condominium.

(iv) Cooperative.

(A) In general.

(B) Application of improvement rules to a cooperative.

(v) Leased building.

(A) In general.

(B) Application of improvement rules to a leased building.

(1) Entire building.

(2) Portion of building.

(3) Property other than a building.

(i) In general.

(ii) Plant property.

(A) Definition.

(B) Unit of property for plant property.

(iii) Network assets.

(A) Definition.

(B) Unit of property for network assets.

(iv) Leased property other than buildings.

(4) Improvements to property.

(5) Additional rules.

(i) Year placed in service.

(ii) Change in subsequent taxable year.

(6) Examples.

(f) Improvements to leased property.

(1) In general.

(2) Lessee improvements.

(i) Requirement to capitalize.

(ii) Unit of property for lessee improvements.

(3) Lessor improvements.

(i) Requirement to capitalize.

(ii) Unit of property for lessor improvements.

(4) Examples.

(g) Special rules for determining improvement costs.

(1) Certain costs incurred during an improvement.

(i) In general.

(ii) Exception for individuals' residences.

(2) Removal costs.

(i) In general.

(ii) Examples.

(3) Related amounts.

(4) Compliance with regulatory requirements.

(h) Safe harbor for small taxpayers.

(1) In general.

(2) Application with other safe harbor provisions.

(3) Qualifying taxpayer.

(i) In general.

(ii) Application to new taxpayers.

(iii) Treatment of short taxable year.

(iv) Definition of gross receipts.

(4) Eligible building property.

(5) Unadjusted basis.

(i) Eligible building property owned by the taxpayer.

(ii) Eligible building property leased to the taxpayer.

(6) Time and manner of election.

(7) Treatment of safe harbor amounts.

(8) Safe harbor exceeded.

(9) Modification of safe harbor amounts.

(10) Examples.

(i) Safe harbor for routine maintenance.

(1) In general.

(i) Routine maintenance for buildings.

(ii) Routine maintenance for property other than buildings.

(2) Rotable and temporary spare parts.

(3) Exceptions.

(4) Class life.

(5) Coordination with section 263A.

(6) Examples.

(j) Capitalization of betterments.

(1) In general.

(2) Application of betterment rules.

(i) In general.

(ii) Application of betterment rules to buildings.

(iii) Unavailability of replacement parts.

(iv) Appropriate comparison.

(A) In general.

(B) Normal wear and tear.

(C) Damage to property.

(4) Examples.

(k) Capitalization of restorations.

(1) In general.

(2) Application of restorations to buildings.

(3) Exception for losses based on salvage value.

(4) Restoration of damage from casualty.

(i) Limitation.

(ii) Amounts in excess of limitation.

(5) Rebuild to like-new condition.

(6) Replacement of a major component or substantial structural part.

(i) In general.

(A) Major component.

(B) Substantial structural part.

(ii) Major components and substantial structural parts of buildings.

(7) Examples.

(l) Capitalization of amounts to adapt property to a new or different use.

(1) In general.

(2) Application of adaptation rule to buildings.

(3) Examples.

(m) Optional regulatory accounting method.

(1) In general.

(2) Eligibility for regulatory accounting method.

(3) Description of regulatory accounting method.

(4) Examples.

(n) Election to capitalize repair and maintenance costs.

(1) In general.

(2) Time and manner of election.

(3) Exception.

(4) Examples.

(o) Treatment of capital expenditures.

(p) Recovery of capitalized amounts.

(q) Accounting method changes.

(r) Effective/applicability date.

(1) In general.

(2) Early application of this section.

(i) In general.

(ii) Transition rule for elections on 2012 and 2013 returns.

(3) Optional application of TD 9564.

§1.263(a)-4   Amounts paid to acquire or create intangibles.

(a) Overview.

(b) Capitalization with respect to intangibles.

(1) In general.

(2) Published guidance.

(3) Separate and distinct intangible asset.

(i) Definition.

(ii) Creation or termination of contract rights.

(iii) Amounts paid in performing services.

(iv) Creation of computer software.

(v) Creation of package design.

(4) Coordination with other provisions of the Internal Revenue Code.

(i) In general.

(ii) Example.

(c) Acquired intangibles.

(1) In general.

(2) Readily available software.

(3) Intangibles acquired from an employee.

(4) Examples.

(d) Created intangibles.

(1) In general.

(2) Financial interests.

(i) In general.

(ii) Amounts paid to create, originate, enter into, renew or renegotiate.

(iii) Renegotiate.

(iv) Coordination with other provisions of this paragraph (d).

(v) Coordination with §1.263(a)-5.

(vi) Examples.

(3) Prepaid expenses.

(i) In general.

(ii) Examples.

(4) Certain memberships and privileges.

(i) In general.

(ii) Examples.

(5) Certain rights obtained from a government agency.

(i) In general.

(ii) Examples.

(6) Certain contract rights.

(i) In general.

(ii) Amounts paid to create, originate, enter into, renew or renegotiate.

(iii) Renegotiate.

(iv) Right.

(v) De minimis amounts.

(vi) Exception for lessee construction allowances.

(vii) Examples.

(7) Certain contract terminations.

(i) In general.

(ii) Certain break-up fees.

(iii) Examples.

(8) Certain benefits arising from the provision, production, or improvement of real property.

(i) In general.

(ii) Exclusions.

(iii) Real property.

(iv) Impact fees and dedicated improvements.

(v) Examples.

(9) Defense or perfection of title to intangible property.

(i) In general.

(ii) Certain break-up fees.

(iii) Example.

(e) Transaction costs.

(1) Scope of facilitate.

(i) In general.

(ii) Treatment of termination payments.

(iii) Special rule for contracts.

(iv) Borrowing costs.

(v) Special rule for stock redemption costs of open-end regulated investment companies.

(2) Coordination with paragraph (d) of this section.

(3) Transaction.

(4) Simplifying conventions.

(i) In general.

(ii) Employee compensation.

(iii) De minimis costs.

(iv) Election to capitalize.

(5) Examples.

(f) 12-month rule.

(1) In general.

(2) Duration of benefit for contract terminations.

(3) Inapplicability to created financial interests and self-created amortizable section 197 intangibles.

(4) Inapplicability to rights of indefinite duration.

(5) Rights subject to renewal.

(i) In general.

(ii) Reasonable expectancy of renewal.

(iii) Safe harbor pooling method.

(6) Coordination with section 461.

(7) Election to capitalize.

(8) Examples.

(g) Treatment of capitalized costs.

(1) In general.

(2) Financial instruments.

(h) Special rules applicable to pooling.

(1) In general.

(2) Method of accounting.

(3) Adopting or changing to a pooling method.

(4) Definition of pool.

(5) Consistency requirement.

(6) Additional guidance pertaining to pooling.

(7) Example.

(i) [Reserved].

(j) Application to accrual method taxpayers.

(k) Treatment of related parties and indirect payments.

(l) Examples.

(m) Amortization.

(n) Intangible interests in land [Reserved]

(o) Effective date.

(p) Accounting method changes.

(1) In general.

(2) Scope limitations.

(3) Section 481(a) adjustment.

§1.263(a)-5   Amounts paid or incurred to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions.

(a) General rule.

(b) Scope of facilitate.

(1) In general.

(2) Ordering rules.

(c) Special rules for certain costs.

(1) Borrowing costs.

(2) Costs of asset sales.

(3) Mandatory stock distributions.

(4) Bankruptcy reorganization costs.

(5) Stock issuance costs of open-end regulated investment companies.

(6) Integration costs.

(7) Registrar and transfer agent fees for the maintenance of capital stock records.

(8) Termination payments and amounts paid to facilitate mutually exclusive transactions.

(d) Simplifying conventions.

(1) In general.

(2) Employee compensation.

(i) In general.

(ii) Certain amounts treated as employee compensation.

(3) De minimis costs.

(i) In general.

(ii) Treatment of commissions.

(4) Election to capitalize.

(e) Certain acquisitive transactions.

(1) In general.

(2) Exception for inherently facilitative amounts.

(3) Covered transactions.

(f) Documentation of success-based fees.

(g) Treatment of capitalized costs.

(1) Tax-free acquisitive transactions [Reserved].

(2) Taxable acquisitive transactions.

(i) Acquirer.

(ii) Target.

(3) Stock issuance transactions [Reserved].

(4) Borrowings.

(5) Treatment of capitalized amounts by option writer.

(h) Application to accrual method taxpayers.

(i) [Reserved].

(j) Coordination with other provisions of the Internal Revenue Code.

(k) Treatment of indirect payments.

(l) Examples.

(m) Effective date.

(n) Accounting method changes.

(1) In general.

(2) Scope limitations.

(3) Section 481(a) adjustment.

§1.263(a)-6   Election to deduct or capitalize certain expenditures.

(a) In general.

(b) Election provisions.

(c) Effective/applicability date.

(1) In general.

(2) Early application of this section.

(3) Optional application of TD 9564.

[T.D. 9107, 69 FR 444, Jan. 5, 2004, as amended by T.D. 9564, 76 FR 81100, Dec. 27, 2011; T.D. 9636, 78 FR 57708, Sept. 19, 2013; T.D. 9636, 79 FR 42191, July 21, 2014]

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