To regard the cost of an improvement or other purchase as a capital asset for purposes of determining Income Tax liability. To calculate the net worth upon which an investment is based. To issue company stocks or bonds to finance an investment.
The owner of a business may capitalize the expense of renovating a factory to maximize his or her after-tax profits, since such expenses may be used to decrease the pretax profits, thereby reducing the amount of profits subject to taxation.
An individual may compute the net worth of shares of stock, in order to treat them as capital assets for income tax purposes. Such treatment often results in more favorable rates of taxation on the profits made when assets are sold because they are considered capital gains.