Spring 2013 issue of Horizons

of which is, for example, to provide shelter or housing, or to provide working, office, parking, display, or sales space. For tax purposes, structural components are defined to include such parts of a building as walls, partitions, floors, and ceilings, as well as any permanent coverings such as paneling or tiling, windows and doors, chimneys, stairs, and other components relating to the operation or maintenance of a building. Structural components designated as building systems are not considered structural components. Building systems include heating, ventilation, and air conditioning (“HVAC”) systems, plumbing systems, electrical systems, escalators, elevators, fire-protection and alarm systems, security systems for the protection of the building and its occupants, gas distribution systems and other structural components. interdependent machinery or equipment, other than network assets, used to perform an industrial process, such as manufacturing, generation, warehousing, distribution, automated materials handling in service industries, or other similar activities. Network Assets Network assets means railroad track, oil and gas pipelines, water and sewage pipelines, power transmission and distribution lines, and telephone and cable lines that are owned or leased by taxpayers in each of those respective industries. Leased Property Other Than Buildings Where the taxpayer is the lessee of real or personal property other than buildings, the unit of property is determined applying the applicable rules described above. The unit of property may not be larger than the unit of leased property. Other Property The unit of property definition for property other than buildings, plant property, network assets and leased property other Plant Property Plant property means functionally

than buildings is based upon the functional interdependence standard. Under the functional interdependence standard, all the components that are functionally interdependent comprise a single unit of property. A general rule is that the smaller a unit of property, the more likely an expenditure must be capitalized. For example, is replacing the engine or tracks on a grader considered an improvement to the equipment and capitalizable or is the replacement a repair and, therefore, currently deductible? The answer is dependent on the selection of unit of property. Has the Unit of Property Been Improved? Once the unit of property determination has been made, one must determine if the unit of property is improved. The aggregate of related amounts paid should be capitalized if these activities performed after the property is placed in service by the taxpayer:

∙ Result in a betterment to the unit of property

∙ Restore the unit of property

∙ Adapt the unit of property to a new or different use

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