Just add the taxes and interest to the basis of the property.
Taxes and carrying charges.
(1) The taxpayer may elect, as provided in paragraph (c) of this section, to treat the items enumerated in this subparagraph which are otherwise expressly deductible under the provisions of Subtitle A of the Code as chargeable to capital account either as a component of original cost or other basis, for the purposes of section 1012, or as an adjustment to basis, for the purposes of section 1016(a)(1). The items thus chargeable to capital account are:
(i) In the case of unimproved and unproductive real property: Annual taxes, interest on a mortgage, and other carrying charges.
(ii) In the case of real property, whether improved or unimproved and whether productive or unproductive:
(a) Interest on a loan (but not theoretical interest of a taxpayer using his own funds),
(b) Taxes of the owner of such real property measured by compensation paid to his employees,
(c) Taxes of such owner imposed on the purchase of materials, or on the storage, use, or other consumption of materials, and
(d) Other necessary expenditures,
paid or incurred for the development of the real property or for the construction of an improvement or additional improvement to such real property, up to the time the development or construction work has been completed. The development or construction work with respect to which such items are incurred may relate to unimproved and unproductive real estate whether the construction work will make the property productive of income subject to tax (as in the case of a factory) or not (as in the case of a personal residence), or may relate to property already improved or productive (as in the case of a plant addition or improvement, such as the construction of another floor on a factory or the installation of insulation therein).
(iii) In the case of personal property:
(a) Taxes of an employer measured by compensation for services rendered in transporting machinery or other fixed assets to the plant or installing them therein,
(b) Interest on a loan to purchase such property or to pay for transporting or installing the same, and
(c) Taxes of the owner thereof imposed on the purchase of such property or on the storage, use, or other consumption of such property,
paid or incurred up to the date of installation or the date when such property is first put into use by the taxpayer, whichever date is later.
(iv) Any other taxes and carrying charges with respect to property, otherwise deductible, which in the opinion of the Commissioner are, under sound accounting principles, chargeable to capital account.
Capitalization
