Betterment, Restoration Or Adaptation
Generally, a cost must be depreciated if it results in an improvement to a building structure or any of its systems (for example, the plumbing or electrical system), or to other tangible property.
Under the “betterment test,” anything that is going to increase your production because of a material asset you have added to the business must be depreciated.
Under the “restoration test,” any change to the unit of property’s physical structure or any combination of its parts must be depreciated.
Under the “adaptation test,” if a part of the property is adapted to a function that it wasn’t used for originally, the amount paid to convert that part must be depreciated.