Rule
Construction-related expense items, such as tools, materials, and wages to construction workers are treated as part of the cost of acquisition of a capital asset. Reasonable wages paid in carrying on of a trade or business qualify as a deduction from gross income, but when wages are paid in connection with construction or acquisition of a capital asset they must be capitalized and are then entitled to be amortized over the life of the capital asset so acquired.
§263(a)(1) of the Internal Revenue Code denies a deduction for any amount paid out for construction or permanent improvement of facilities. This extends to the cost of acquisition, construction, or erection of buildings. Treas. Reg. §1.263(a)-2(a).
Read more about this topic: Commissioner V. Idaho Power Co.
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