Meredith and Martin form the cash basis, calendar-year MM Partnership on July 1

Question

Meredith and Martin form the cash basis, calendar-year MM Partnership on July 1 of the current year. They purchase equuipment and a building and incur substantial legal costs in forming the partnership. Under state law, they paid a transfer tax on acquisition of the building. They spent July and August renovating the building, buying inventory, and planning and advertising for their "grand opening" on September 1.

Describe how each of these cost would be treated for tax purposes:
Transfer tax for building

Explanation / Answer

Renovating the building:This is a capital expenditure.With this the value of the building will increse
Transfer tax for building : This expenditure also capitalized. While purchasing the property, to trnasfer the ownership of the building by registering the same in our name , have to pay these taxes. Buying inventory: purchasing inventory for repairs,is a capital expendture, like purchase of sand,bricks Planning and advertisemt : These expenditures are revenue in nature. and the amount spending on advertisemtn These expenses are revenue in nature.

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