Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for production or resale activities. Include these costs in the basis of property you produce or acquire for resale rather than claiming them as a current deduction. You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property.

Indirect costs include premiums for insurance on your plant or facility, machinery, equipment, materials, property produced, or property acquired for resale.

When the uniform capitalization rules apply. You must use the uniform capitalization rules if, in your trade or business or activity carried on for profit, you do any of the following.

• Produce real property or tangible personal property for use in the business or activity.
• Produce real property or tangible personal property for sale to customers.
• Acquire property for resale. However, you generally do not have to use the uniform capitalization rules for personal property acquired for resale if your average annual gross receipts are not more than $10,000,000 for the 3 prior tax years.

More information. For more information on the uniform capitalization rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A.

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