A capital expense, or CapEx, is money a company spends to acquire, maintain, or upgrade long-term assets like buildings, equipment, or machinery. Unlike day-to-day operating expenses, capital expenses are investments expected to provide value for more than one year. These purchases are often part of a company’s strategy for growth or to improve its operational efficiency.
Capital Expense Examples in Business
Common capital expenses include buying a building or land, purchasing vehicles, machinery or computer equipment, major renovations that extend the life of a property, and buying or developing software the business will use for several years.
Because these assets last longer than a year, a capital expense is not deducted in full when it is paid. It is recorded on the balance sheet and its cost is spread over the asset’s useful life through depreciation or amortization. An operating expense, such as rent, wages or utilities, is deducted in the year it is incurred. Tax rules such as Section 179 and bonus depreciation can let a business deduct more of a capital expense up front, so it is worth checking with an accountant before a large purchase.