Under Capitalization and Repairs regulations, when must a taxpayer capitalize an expense?

A taxpayer must capitalize an expense when it meets certain criteria under Capitalization and Repairs regulations, which include betterments, restorations, and adaptations to a new use.

When an expenditure is made for betterment, it typically enhances the value of the property, prolongs its useful life, or adapts it to a different use; these scenarios usually warrant capitalization rather than immediate deduction. Betterments represent significant improvements that add value beyond the original condition.

Restorations refer to expenses incurred to bring a property back to its original condition after it has deteriorated or been damaged. This type of expenditure is also capitalized because it involves restoring the base value of the asset.

Finally, if an expense is incurred to adapt the property to a new use, this also requires capitalization. Such adaptations can significantly change how the property is utilized, thereby impacting its value.

In summary, all three scenarios—betterment, restoration, and adaptation—comprise instances where the IRS guidelines require a taxpayer to capitalize expenses to accurately reflect the property's value and comply with tax regulations.