§ 263. Capital expenditures
(a)
General rule
No deduction shall be allowed for—
(1)
Any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate. This paragraph shall not apply to—
(E)
expenditures for removal of architectural and transportation barriers to the handicapped and elderly which the taxpayer elects to deduct under section
190,
(c)
Intangible drilling and development costs in the case of oil and gas wells and geothermal wells
Notwithstanding subsection (a), and except as provided in subsection (i), regulations shall be prescribed by the Secretary under this subtitle corresponding to the regulations which granted the option to deduct as expenses intangible drilling and development costs in the case of oil and gas wells and which were recognized and approved by the Congress in House Concurrent Resolution 50, Seventy-ninth Congress. Such regulations shall also grant the option to deduct as expenses intangible drilling and development costs in the case of wells drilled for any geothermal deposit (as defined in section
613
(e)(2)) to the same extent and in the same manner as such expenses are deductible in the case of oil and gas wells. This subsection shall not apply with respect to any costs to which any deduction is allowed under section
59
(e) or
291.
(d)
Expenditures in connection with certain railroad rolling stock
In the case of expenditures in connection with the rehabilitation of a unit of railroad rolling stock (except a locomotive) used by a domestic common carrier by railroad which would, but for this subsection, be properly chargeable to capital account, such expenditures, if during any 12-month period they do not exceed an amount equal to 20 percent of the basis of such unit in the hands of the taxpayer, shall, at the election of the taxpayer, be treated (notwithstanding subsection (a)) as deductible repairs under section
162 or
212. An election under this subsection shall be made for any taxable year at such time and in such manner as the Secretary prescribes by regulations. An election may not be made under this subsection for any taxable year to which an election under subsection (e) applies to railroad rolling stock (other than locomotives).
(f)
Railroad ties
In the case of a domestic common carrier by rail (including a railroad switching or terminal company) which uses the retirement-replacement method of accounting for depreciation of its railroad track, expenditures for acquiring and installing replacement ties of any material (and fastenings related to such ties) shall be accorded the same tax accounting treatment as expenditures for replacement ties of wood (and fastenings related to such ties).
(g)
Certain interest and carrying costs in the case of straddles
(1)
General rule
No deduction shall be allowed for interest and carrying charges properly allocable to personal property which is part of a straddle (as defined in section
1092
(c)). Any amount not allowed as a deduction by reason of the preceding sentence shall be chargeable to the capital account with respect to the personal property to which such amount relates.
(2)
Interest and carrying charges defined
For purposes of paragraph (1), the term “interest and carrying charges” means the excess of—
(B)
the sum of—
(i)
the amount of interest (including original issue discount) includible in gross income for the taxable year with respect to the property described in subparagraph (A),
(ii)
any amount treated as ordinary income under section
1271
(a)(3)(A),
1276, or
1281
(a) with respect to such property for the taxable year,
(iii)
the excess of any dividends includible in gross income with respect to such property for the taxable year over the amount of any deduction allowable with respect to such dividends under section
243,
244, or
245, and
(iv)
any amount which is a payment with respect to a security loan (within the meaning of section
512
(a)(5)) includible in gross income with respect to such property for the taxable year.
For purposes of subparagraph (A), the term “interest” includes any amount paid or incurred in connection with personal property used in a short sale.
(h)
Payments in lieu of dividends in connection with short sales
(1)
In general
If—
(A)
a taxpayer makes any payment with respect to any stock used by such taxpayer in a short sale and such payment is in lieu of a dividend payment on such stock, and
(B)
the closing of such short sale occurs on or before the 45th day after the date of such short sale,
then no deduction shall be allowed for such payment. The basis of the stock used to close the short sale shall be increased by the amount not allowed as a deduction by reason of the preceding sentence.
(2)
Longer period in case of extraordinary dividends
If the payment described in paragraph (1)(A) is in respect of an extraordinary dividend, paragraph (1)(B) shall be applied by substituting “the day 1 year after the date of such short sale” for “the 45th day after the date of such short sale”.
(4)
Special rule where risk of loss diminished
The running of any period of time applicable under paragraph (1)(B) (as modified by paragraph (2)) shall be suspended during any period in which—
(5)
Deduction allowable to extent of ordinary income from amounts paid by lending broker for use of collateral
(6)
Application of this subsection with subsection (g)
In the case of any short sale, this subsection shall be applied before subsection (g).
(2)
such costs shall—
(A)
at the election of the taxpayer, be included in adjusted basis for purposes of computing the amount of any deduction allowable under section
611 (determined without regard to section
613), or
(B)
if subparagraph (A) does not apply, be allowed as a deduction ratably over the 10-taxable year period beginning with the taxable year in which such costs were paid or incurred.
This subsection shall not apply to costs paid or incurred with respect to a nonproductive well.
[1] So in original. The semicolon probably should be a comma.