A capital expense either increases the property's value or extends the property's useful life.
A repair only fixes something that is broken without either increasing the property's value or extending its useful life.
Replacing the roof may extend the property's useful life another 25 years. Fixing a roof leak only keeps the roof in service to the end of its useful life.
No. If the furnace is not economical to repair, then the furnace has reached the end of its useful life. When the furnace is replaced, the new furnace is a capital improvement and the cost is depreciated over the class life of the furnace.
It was an error to use the term "capital expense". To make things clearer, I should have used the term "Capital Improvement" instead. The cost of a Capital Improvement is recovered through depreciation, rather than expensed in the year of purchase. [ Edited by DaveT on Date 02/15/2004 ]
Capital Expense
So If I repaired the furnace that would be an Expense ?
Yep!
A capital expense either increases the property's value or extends the property's useful life.
A repair only fixes something that is broken without either increasing the property's value or extending its useful life.
Replacing the roof may extend the property's useful life another 25 years. Fixing a roof leak only keeps the roof in service to the end of its useful life.
So, if the furnace is broken and he replaces it, would that be considered a repair?
No. If the furnace is not economical to repair, then the furnace has reached the end of its useful life. When the furnace is replaced, the new furnace is a capital improvement and the cost is depreciated over the class life of the furnace.
It was an error to use the term "capital expense". To make things clearer, I should have used the term "Capital Improvement" instead. The cost of a Capital Improvement is recovered through depreciation, rather than expensed in the year of purchase. [ Edited by DaveT on Date 02/15/2004 ]