In order to qualify under Section 195, the expenditure must be one that would have been allowable as an ordinary and necessary deduction by an existing trade or business when it was paid or incurred.
Section 195 is inapplicable to rental property because renting is not considered an active trade or business, but rather a passive activity.
Code Sec. 263 requires the capitalization of amounts paid to acquire, produce, or improve tangible property.
Sec. 1.162-4, Income Tax Regs. Repairs in the nature of replacements, to the extent that they arrest deterioration and appreciably prolong the life of the property, must generally be capitalized and depreciated in accordance with section 167.
