Comment by twoodfin
6 months ago
What about construction worker and other labor time to build a factory? That’s the analogy being made here by the tax code: Software whose development is a capital expense with value returned over time.
6 months ago
What about construction worker and other labor time to build a factory? That’s the analogy being made here by the tax code: Software whose development is a capital expense with value returned over time.
From a quick search it appears to me like construction labor is deductible as an expense in the year it is incurred. Do you have evidence that says otherwise?
My reading of § 1.263A-1 is that construction labor must be capitalized.
§ 1.263A-1.a.3.A indicates that it's in scope: Real property and tangible personal property produced by the taxpayer
§ 1.263A-1.e.2 specifies that Direct Costs are subject to capitalization: Producers. Producers must capitalize direct material costs and direct labor costs.
(I'm just a taxpayer, not a tax lawyer or even an EA or CPA.)
What tax code references or treasury regulations did you find to support your belief that construction labor can be expensed in the year performed?
> Dear ChatGPT, is construction labor deductible as an expense in the year it is incurred according to GAAP? Please answer in a few lines.
Under GAAP, construction labor is not immediately deductible as an expense in the year it is incurred if it relates to the construction of a long-term asset (like a building). Instead, it is capitalized as part of the asset's cost and then expensed over time through depreciation. Only labor costs not tied to asset creation (e.g., routine maintenance) are expensed as incurred.
Though your answer is correct for the tax code as well as GAAP, Generally Accepted Accounting Principles are not necessarily followed by the tax code.
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