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What is Section 263A? Section 263A, often referred to as the Uniform Capitalization rules or UNICAP, requires taxpayers to capitalize direct and indirect costs properly allocable to real or tangible personal property produced or acquired for resale by the taxpayer.

Under IRC 263A, taxpayers must capitalize their direct costs and an allocable share of their indirect costs to property they produce. To determine these capitalizable costs, taxpayers must allocate or apportion costs to various activities, including production activities.

The UNICAP only applies to those companies with over $25M in gross receipts. The UNICAP adjustment takes a method of determining how much of the indirect costs need to be capitalized into the inventory.

The additional Section 263A costs attach schedule is used to itemize some of the costs associated with purchasing items to either resell or produce items that are sold by a business. Some of these items include processing fees, re-packing costs, assembly costs, warehousing fees, and payroll for support personnel.

Examples include worker salaries, production materials, and commissions. Indirect costs. Costs that directly benefit the construction/production activity or are incurred during that activity. Examples include quality control costs, supervision salaries, depreciation, and insurance policies.

Examples include worker salaries, production materials, and commissions. Indirect costs. Costs that directly benefit the construction/production activity or are incurred during that activity. Examples include quality control costs, supervision salaries, depreciation, and insurance policies.

The Section 263A UNICAP rules require businesses to capitalize the direct and indirect costs associated with producing, acquiring, and maintaining their inventory. In general, Section 263A applies to real or personal property produced by a taxpayer and real or personal assets acquired by a taxpayer for resale.

The UNICAP only applies to those companies with over $25M in gross receipts. The UNICAP adjustment takes a method of determining how much of the indirect costs need to be capitalized into the inventory.