Question

Before applying the small business exception, which taxpayer is subject to the uniform capitalization rules?

Inez Blake, who bought a furnished apartment for her daughter's use.

Feliciana Ortiz, who bought lakefront property as an investment, which she expects to appreciate quickly.

Glendon Whittier, who bought a cabinet shop that he operates as a sole proprietor.

Dali Delmonico, who bought a commercial-grade paint sprayer to keep his rental properties nicely painted.

Answer 1

Uniform Capitalisation rules, before exception, will apply to Glendon Whittier, who bought a cabinet shop that he operates as a sole proprietor.

The reasons for the application of Uniform Capitalisation rules (UCR) to Glendon depends on the fact that it isn't applicable to other three options.

The UNICAP rules require the capitalization of all direct costs and certain indirect costs allocable to real property and tangible personal property produced by the taxpayer. For purposes of the uniform capitalization rules, to “produce” means to construct, build, install, manufacture, develop, improve, create, raise or grow. Self-constructed assets and property built under contract are treated as property “produced” by the taxpayer and the rules under § 263A(a) govern.

Any cost which (but for 263A and the regulations thereunder) may not be taken into account in computing taxable income for any taxable year is not treated as a cost properly allocable to property produced or acquired for resale. Thus, for example, any cost (or portion of cost) that is not deductible is not properly allocable to property produced or acquired for resale.

Thus, referring to above 2 paras , UCR will apply only to Glendon Whittier.

Source: IRS