Definition
Carrying costs has two distinct legal meanings, one rooted in litigation procedure and one in finance and tax law.
1. LITIGATION COSTS (historical procedural usage): A verdict is said to "carry costs" when the prevailing party becomes entitled to recover taxable court costs as an incident of the judgment in their favor. The costs do not exist as a separate award — they attach automatically to the verdict, following it as a legal consequence. A verdict that "carries costs" signals that the winning party may seek taxation of costs against the losing party.
2. FINANCING AND HOLDING COSTS (modern transactional and tax usage): In real estate, finance, and tax contexts, carrying costs refer to the ongoing expenses of holding or maintaining an asset — typically real property — during a period of ownership before disposition or productive use. Common examples include mortgage interest, property taxes, insurance premiums, utilities, and maintenance expenses incurred while a property sits idle, is under development, or awaits sale. In tax law, the capitalization versus deduction treatment of carrying costs is a recurring issue, particularly for real property under development.
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Common Language
Modern common usage (Wiktionary): "Carrying costs" or "cost of carry" refers to the total expense of holding an investment or asset, including storage, insurance, financing, and opportunity costs.
Historical common usage (Webster's 1913): Webster's 1913 does not contain an entry for "carrying costs" as a fixed phrase.
The gap between common and legal usage runs in two directions. In ordinary commercial and investment speech, carrying costs is exclusively a holding-cost concept with no procedural connotation. In historical legal usage — particularly in pleading and verdict practice — the phrase had a precise procedural meaning entirely disconnected from finance. Researchers encountering "carrying costs" in older litigation records should not assume the modern financial meaning applies.
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Common Confusion
The two meanings of carrying costs rarely appear in the same legal context, but researchers moving between historical procedural sources and modern transactional or tax materials can misread the phrase entirely. A nineteenth-century report stating that "the verdict carries costs" is a procedural statement about cost entitlement, not a financial accounting observation. Conversely, a tax memorandum discussing "carrying costs" of a development project has no connection to verdict practice. Context — procedural versus transactional — is the controlling signal.
"Carrying costs" in the tax sense is also sometimes loosely conflated with "basis" or "capitalized costs," but the terms are not synonymous. Carrying costs are a category of expenditure; whether they are added to basis or deducted currently is a separate legal determination.
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Why It Matters in Research
Researchers face a genuine disambiguation challenge with this term. The Black's Law Dictionary entry reflects a procedural usage that was standard in nineteenth- and early twentieth-century common law practice but is rarely encountered in contemporary litigation sources. Modern courts do not typically use the phrase "carries costs" — they issue separate cost awards or apply fee-shifting statutes. If you are searching a historical case reporter or digest for cost-related doctrine, recognizing this older formulation prevents misreading or missed results.
The modern financial and tax meaning dominates current transactional practice, real estate law, and tax planning. In the tax corpus, carrying costs appear most prominently in discussions of the uniform capitalization rules (UNICAP) under the Internal Revenue Code, which require certain carrying costs on real property held for sale or under development to be capitalized rather than immediately deducted. This is a technically dense area where the definition of what qualifies as a "carrying cost" and whether it must be capitalized turns on specific regulatory guidance.
In civil procedure research, the connection between a favorable verdict and cost-shifting is governed today primarily by Rule 54(d) of the Federal Rules of Civil Procedure and 28 U.S.C. § 1920 at the federal level, and by analogous state court rules. The historical formulation — that a verdict "carries costs" — maps onto this framework but should not be treated as a precise statement of modern doctrine without verification of the applicable rules.
Jurisdictional variation in what costs are taxable, and to whom, is significant enough that any research into cost-shifting should begin with the specific court's governing rules, not the general principle.
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Historical Dictionary Support
Black's Law Dictionary provides the only historical legal dictionary entry for this term in the available source material, and its definition is exclusively procedural: a verdict carries costs when the prevailing party becomes entitled to recover costs as an incident of the verdict. This definition reflects the common law tradition in which costs followed the event — that is, the loser paid the winner's taxable costs as a near-automatic consequence of an adverse judgment.
What historical sources miss entirely is the modern financial meaning of carrying costs. The procedural definition in Black's was current and sufficient for its era, but it tells a researcher nothing about how the phrase functions in real estate transactions, development finance, or tax planning — the contexts where the term most frequently appears today. The historical dictionaries should be treated as authoritative for the procedural meaning and silent on the transactional one.
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Jurisdictional Note
The procedural rule that costs follow the verdict operates differently across jurisdictions. Federal courts apply a presumption in favor of awarding costs to the prevailing party under Rule 54(d), but the list of recoverable costs is restricted by statute. Many state courts apply broader or narrower cost-shifting rules. The financial and tax meaning of carrying costs is federal in its most technically precise form, governed by the Internal Revenue Code and Treasury regulations, though state tax codes may incorporate or diverge from federal treatment.
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Encyclopedia Cross-Reference
civpro_142: Costs and Taxation of Costs — Rule 54(d) and 28 USC 1920 (The Law Mind Civil Procedure & Evidence Encyclopedia)
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