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A. Expenses

Taxpayers generally may deduct

expenses that are ordinary

and necessary in carrying on a trade

or

business.

Sec.

162(a).

Also, taxpayers generally may deduct

expenses that are ordinary

and necessary for (1) the production

or collection of income, or

(2) the management, conservation, or

maintenance of property held

for

the

production

of

income.

Sec.

212(1)

and

(2).

Further,

while business expenses and expenses

related to income-producing

property are currently deductible, a

taxpayer is not entitled to

deduct a capital expenditure; i.e.,

an amount paid for new

property or for permanent improvemen

ts or betterments made to

increase the value of any property o

r

estate.

12

Sec.

263(a)(1).

Instead, a depreciation deduction ma

y be allowed if the property

is used in a trade or business or he

ld for the production of

income.

Sec.

167;

see

INDOPCO,

Inc.

v. Commissioner, 503 U.S.

79,

83-84

(1992).

Personal,

living,

and family expenses, on the

other hand, may not be deducted unle

ss the Internal Revenue Code

expressly provides otherwise; e.g.,

State and local real property

taxes are deductible pursuant to sec

tion

164(a)(1).

Sec.

262(a).

The statutory prohibitions of sectio

ns 262 and 263 regarding

deductibility of personal and capita

l expenses take precedence

over the allowance provisions of sec

tions 162 and 212.

12Generally, the cost of acquisition of property

useful life substantially beyond the taxable

expenditure.

Sec.

1.263(a)-2(a),

Income

Tax

year is Regs.

having a a capital

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