Yes, insurance costs can be capitalized when they're directly tied to the construction, acquisition, or improvement of a depreciable asset, such as a building or equipment.
What costs can be capitalized?
Capitalizable costs include materials, labor, sales taxes, transportation, interest incurred to finance construction, professional fees, permits, and intangible asset expenses like trademarks and software development.
These costs get added to the asset’s basis and depreciated or amortized over time. Say you spend $50,000 on materials and $20,000 on labor to build a warehouse—those amounts get capitalized and depreciated over the warehouse’s useful life. Intangible costs, like legal fees for filing a patent, get treated the same way. Always check with a tax pro to stay compliant with IRS rules, since capitalization rules vary by asset type.
Can insurance be capitalized during construction?
Yes, insurance costs directly allocable to the production or construction activity must be capitalized and included in the asset’s basis.
Take builder’s risk insurance. If you pay $10,000 annually for it during the construction of a $1 million office building, that $10,000 gets capitalized and depreciated over the building’s useful life. But insurance for completed assets—like property insurance for an existing factory—is typically expensed as incurred. The key is whether the insurance is tied to the *production phase* of the asset. As of 2026, FASB standards still back this treatment for assets under construction. For more on capitalization rules, see our guide on capitalizing costs.
What expenses can be capitalized during construction?
Construction-phase capitalizable expenses include professional fees (architect and engineering), permits, materials, labor, and other expenditures necessary to place the asset in service.
For instance, if you spend $15,000 on architectural plans and $5,000 on permits for a new store, those costs get added to the building’s basis. Site prep costs—like grading or demolishing an old structure ($30,000 in the example above)—also get capitalized. Routine operating expenses, such as temporary fencing for security, don’t qualify. According to AccountingTools, capitalizing these costs spreads them over the asset’s life rather than expensing them immediately.
Should title insurance be capitalized?
Yes, title insurance is typically capitalized and added to the cost basis of the property.
Say you pay $3,000 for title insurance when purchasing a $500,000 home. That $3,000 gets added to the property’s basis, which increases the amount you can depreciate if the property is used for business or rental income. Title insurance protects against ownership disputes, which directly benefits the property’s long-term value. The IRS Publication 535 confirms that costs incurred to acquire or improve property are capitalized, and title insurance falls under this category. For more on property-related expenses, check out insurance coverage rules.
Is renovation a capital expenditure?
Renovations that materially improve or extend the useful life of a property are capital expenditures; routine repairs and maintenance are not.
For example, replacing all windows in a rental property for $20,000 is a capital improvement—it adds value and extends the property’s life. But patching a leaky roof for $1,500? That’s a repair, and it’s expensed immediately. The IRS draws a clear line here: capital improvements get depreciated over time, while repairs get deducted in the current year. If the renovation is part of a larger project—like a full kitchen remodel—the entire cost may be capitalized. Learn more about capitalization in different contexts.
What costs can be capitalized under GAAP?
Under GAAP, costs can be capitalized if they increase the asset’s value or extend its useful life.
For example, a $12,000 engine upgrade for a delivery truck that adds 5 years to its life? Capitalized and depreciated over those 5 years. But a $200 oil change? Expensed immediately—it only maintains the truck’s existing condition. The FASB makes it clear: capitalization must result in future economic benefits. Training employees to use new equipment doesn’t qualify, since it doesn’t improve the asset itself.
How do you record capitalized expenses?
Capitalized expenses are recorded on the balance sheet as an asset at their historical cost.
Say you capitalize $50,000 for a new machine. That amount shows up as an asset on the balance sheet. Over time, the asset’s cost gets allocated to the income statement through depreciation or amortization. If the machine has a 10-year useful life, you might record $5,000 in depreciation expense annually. The AccountingCoach points out that this process matches the expense with the revenue generated by the asset over its life.
What expenses Cannot be capitalized?
Expenses that don’t provide future economic benefits beyond the current year cannot be capitalized.
Common examples? Inventory (since it’s sold within the operating cycle), routine maintenance, and general operating expenses like office supplies. Say you spend $500 on office supplies in December 2025. Those costs get expensed in 2025, even if the supplies are used in 2026. The IRS Publication 334 spells this out: capitalization is reserved for costs that enhance or extend an asset’s life.
Are project management costs capitalizable?
Project management costs can be capitalized if they’re directly associated with a specific capital project.
For example, if you hire a project manager for $25,000 to oversee the construction of a new warehouse, those costs get capitalized and depreciated over the warehouse’s life. Alternatively, you can apply a percentage (say, 5%) of the total project budget to project management costs. The PwC guide on capitalization notes that costs must be “reasonable and necessary” to qualify. Always document the direct relationship between the project manager’s work and the asset’s development.
When Should cost be capitalized?
Costs should be capitalized when they provide future economic benefits and are not yet used up.
Say your company spends $30,000 in June 2026 to install a hydraulic lift on a delivery truck. That cost gets capitalized because it extends the truck’s useful life. The lift is an asset that’ll benefit the company for years, so it’s recorded on the balance sheet and depreciated. In contrast, a $1,000 repair to fix a broken taillight? Expensed immediately—it only restores the truck to its prior condition. The IRS Publication 551 makes it clear: capitalization is appropriate for costs that “add to the value or prolong the life” of an asset.
What costs are capitalized to land?
Costs capitalized to land include the purchase price, title fees, legal fees, survey costs, zoning fees, and site preparation expenses like grading or demolition.
Say you buy land for $200,000 and pay $10,000 in title fees, $5,000 in legal fees, and $15,000 to demolish an old building. The total capitalized cost? $230,000. These costs aren’t depreciated because land has an indefinite useful life. The AccountingTools points out that land improvements (like fencing or paving) get capitalized separately and depreciated over their useful lives. Only costs that are “ordinary and necessary” to acquire and prepare the land for its intended use get included. For more on property-related expenses, explore capitalization guidelines.
Are architect fees capitalized or expensed?
Architect fees should be capitalized if they’re directly related to the construction or improvement of a depreciable asset.
For example, if you pay $25,000 to an architect for designing a new office building, that fee gets added to the building’s basis and depreciated over its useful life. But if the architect’s work is for a repair or maintenance project—say, redesigning a broken HVAC system—the fee gets expensed immediately. The FASB standards back this up, since architect fees are considered part of the asset’s cost when they’re incurred to place the asset in service. Always allocate fees correctly to avoid misreporting.
What repairs can be capitalized?
Repairs can be capitalized if they meet the $5,000 threshold (or your company’s capitalization policy) and result in increased usefulness or efficiency.
For example, replacing a $6,000 HVAC system in a commercial building gets capitalized because it improves the building’s functionality. But patching a $2,000 roof leak? Expensed immediately. The IRS doesn’t set a specific dollar amount, but many companies use $5,000 as a guideline. Repairs that extend the asset’s life—like a $7,500 engine overhaul for a delivery truck—also get capitalized. Document the improvement to justify the capitalization.
Is painting a capital expenditure?
Painting is typically a repair expense unless it’s part of a larger capital improvement project.
For example, repainting a rental property’s interior for $1,500 gets expensed immediately—it only restores the property to its prior condition. But if the painting is part of a $50,000 kitchen remodel, the paint cost gets capitalized as part of the overall improvement. The IRS sees repainting as a maintenance cost unless it directly benefits a capital improvement. Always evaluate the context of the painting project to determine the correct accounting treatment. For more on capitalization rules, see capitalization in titles.
What are capital expenses examples?
Capital expenses include the purchase of fixed assets like buildings, equipment, and vehicles, as well as upgrades that extend their useful lives.
Examples? A $500,000 factory building, a $50,000 CNC machine, or a $20,000 software system. Intangible assets—like a $100,000 patent—count too. Routine expenses? Not so much. Office chairs for $500 or monthly software subscriptions for $200 don’t qualify. The Investopedia makes it clear: capital expenses get recorded as assets on the balance sheet and depreciated or amortized over time. This distinction matters for accurate financial reporting and tax planning.
