In the field of

taxation A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, o ...

in the United States, the 12 month rule refers to the

capitalization Capitalization (American English) or capitalisation (British English) is writing a word with its first letter as a capital letter (uppercase letter) and the remaining letters in lower case, in writing systems with a case distinction. The term ...

property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, r ...

asset In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can ...

s that provide only short-term benefits. The 12 month rule makes it unnecessary to capitalize the cost of

purchase Purchasing is the process a business or organization uses to acquire goods or services to accomplish its goals. Although there are several organizations that attempt to set standards in the purchasing process, processes can vary greatly between ...

production Production may refer to: Economics and business * Production (economics) * Production, the act of manufacturing goods * Production, in the outline of industrial organization, the act of making products (goods and services) * Production as a stati ...

of anything with a useful life of less than a year, although it is not without exception. Prop. Reg. 1.263(a)-2(d)(4)(i) serves to codify the 12 month rule and the generally accepted view that capitalization is only required for costs related to the purchase or production of

fixed asset A fixed asset, also known as long-lived assets or property, plant and equipment (PP&E), is a term used in accounting for assets and property that may not easily be converted into cash. Fixed assets are different from current assets, such as cash ...

s that will continue to provide a benefit over the course of several years, or at least for a time significantly longer than the taxable year.Donaldson, Samuel A. ''Federal Income Taxation Of Individuals: Cases, Problems and Materials'' (2nd ed.). St. Paul: Thomson West, 2007. pg. 174

References

{{reflist Taxation in the United States