Can I Depreciate Building Excavation Costs?

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Current business expenses are those that help keep your business going, and are deductible. Capitalized expenditures are those that have a useful life of more than a year, or that will generate income for future reporting periods. These types of expenses are depreciated on a tax return -- that is, a portion of the cost is deducted every year for the useful life of the asset. If excavation expenses meet any of the following criteria, they are eligible for depreciation.

Adds Value to the Asset

Usually, if excavation is necessary it will add to the value of the asset. A building cannot be built without excavating, so excavating costs always add value because they contribute to the basic construction of the building. If an existing building is in need of repair, or if you're adding square footage and excavation is involved, the associated costs would meet the requirement of adding value to the asset.

Considerably Lengthens Usage Time

For new construction where excavation is necessary, there is no doubt that the use of the building will be lengthened, since there would be no building at all without the expenditure. For buildings in need of repair there is also no question that the life of the building will be extended. If adding square footage to a building enables your business to expand and use the existing building for a longer period of time, excavation costs can be depreciated.

Adapts Asset to a Different Use

If the building or repairs requiring excavating will adapt the building to a different use, the costs are depreciable. For example, turning a home into an office or building a garage onto a house for business can be depreciated.

References

  • "Tax Savvy for Small Business"; Frederick Daily; 2002

About the Author

Alec Preble began writing professionally in 2007. He began blogging in 2006, writing media reviews for the "Post-Standard" from 2007-2008. Preble received a Bachelor of Arts in English from Empire State College in 2005.

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