Handbook of Operating Procedures

Real Property Capital Assets

Policy Number: 142


Capitalization of real property



Date Reviewed:
November 2008
Responsible Office:
Budget & Financial Reporting; Facilities, Planning and Engineering
Responsible Executive:


The University of Texas Health Science Center at Houston capitalizes real property that is purchased, constructed, or donated with an estimated life of greater than one year and that meets or exceeds the Texas Comptroller of Public Accounts’ established capitalization thresholds. The following standard capitalization thresholds are used for real property:

Class of Asset Threshold

Land / land improvements Capitalize All
Buildings / building improvements $100,000
Facilities and other improvements $100,000
Infrastructure $500,000

The department initiating a request for new construction or alterations must determine whether a project should be capitalized. Facilities, Planning and Engineering will verify this and is responsible for estimating the scope of the project and providing the department with an estimate.


A. Determining Capital Improvements versus Maintenance and Operation Expenses

Capital improvements should be distinguished from ordinary repairs. Ordinary repairs are expenses that maintain the existing asset in normal operating condition and should be expensed immediately. Ordinary repairs are recurring in nature and are normally small relative to the value of the asset; they do not materially add to the use value of the asset, and do not substantially extend its operational life. Examples of ordinary repairs include replacing minor parts, janitorial and utility services, and care of grounds.

For construction of new buildings and major improvements the amounts to be capitalized include (1) the cost of the original contract price of construction; (2) professional fees and services; and (3) other costs incurred to place the asset into operation.

In addition to the net invoice price, Governmental Accounting Standards Board Statement 34 states "The cost of a capital asset should include capitalized interest and ancillary charges necessary to place the asset into its intended location and condition for use. Ancillary charges include costs that are directly attributable to asset acquisition - such as freight and transportation charges, site preparation costs, and professional fees."

Acquisition costs should be included in the value of the land along with improvements consisting of site preparations and improvements (other than buildings) that ready the land for its intended use.

For building improvements to be capitalized they must be part of a major repair or rehabilitation project that materially extends the useful life of a building and/or increases its value.

Replacements are substitutions of a part of an asset for another. For a replacement to be considered capital it must be of significantly improved quality and higher value than the old item (e.g., replacement of an old shingle roof with a modern fireproof tile roof). Replacements or restorations of an item to its original utility level are not capitalized (e.g., replacing an old carpet with a new one).

Periodically, Budget & Financial Reporting (Plant Funds) and Facilities, Planning and Engineering review the list of completed jobs to ensure all job costs, including design jobs, were properly classified to correct expense accounts. Any job costs not properly classified are corrected in the financial management system.

B. Tracking Capitalization Costs

Budget & Financial Reporting (Plant Funds) and Facilities Planning and Engineering (all other funds) track the capitalized account cost(s) of property improvements. Budget & Financial Reporting and Facilities, Planning and Engineering transfer any cost determined not to fall within the guidelines of this policy to a non-capital code to reflect correctly the cost as "Repair and Maintenance." At the close of each fiscal year, Budget & Financial Reporting and Facilities, Planning and Engineering produce reports of annual property improvement expenditures. These reports are used as support for creating Annual Financial Report schedules that reflect the changes in Investment in Plant for Land, Buildings, Facilities and Other Improvements, Infrastructure, and Construction In Progress.


ContactTelephoneEmail/Web Address
Budget & Financial Reporting 713-500-4919



Facilities, Planning and Engineering 713-500-4994 https://inside.uthouston.edu/fpe/Contact.htm