What does the term 'capital expenses' refer to?

The term 'capital expenses' refers to costs that are incurred to acquire, upgrade, or extend the life of a property’s assets, which can subsequently be deducted from rental income for tax purposes. This includes significant expenditures such as purchasing new equipment, making major renovations, or enhancing existing facilities. These capital expenses are treated differently from regular operational or maintenance expenses because they provide long-term benefits or improvements to the property.

For tax purposes, capital expenses often need to be capitalized, meaning they are not fully deductible in the year they are incurred but rather should be depreciated over their useful life, which allows property owners to reduce their taxable income over time. This distinction is critical for property owners and managers to understand, as it has direct implications on tax planning and financial reporting.

The other options represent different types of expenses or costs but do not align with the definition of capital expenses. Operational repairs, employee salaries, and tenant improvements may have financial implications, but they don't capture the full scope of what capital expenses involve or how they function within a property management context.