Capital Expenditures (CapEx)

The funding required to acquire, upgrade and maintain properties. CapEx is often used to undertake physical improvements.

For tax purposes, CapEx cannot be deducted in the year in which it is paid or incurred and must be capitalized. Generally, if the property's useful life is longer than the taxable year, then CapEx must be capitalized. CapEx is amortized or depreciated over the life of the asset. CapEx creates or adds to the cost basis of the asset or property, which, once adjusted, will determine tax liability in the event of sale or transfer. In the U.S., Internal Revenue Code 263 and 263A outline capitalization requirements and exceptions.