Yes, you can add the interest and taxes to the basis of investment property under section 266. You will have to make a statement on your taxes under Section 1.263(a)-3(n).
According to Cornell Law School:
(b) 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).
To do so:
- This cannot be elected in TurboTax Online only on the Desktop versions. Click Forms on right hand side unless already there.
- Then click "Open Form" on left hand side.
- Type 3115, select p1-3. Click open form.
- Under Elections Smart Worksheet on first page, select option 3, Election to Capitalize Repair and Maintenance costs. Click Quick Zoom. Enter the address of property and also a statement like this:
"ELECTION TO CAPITALIZE CARRYING COSTS
For the tax year 2022, taxpayer hereby elects under Code Section 266
and IRS Regulations 1.266-1 to capitalize, rather than deduct, property
taxes on property:
County Of TurboTax amount paid $x,xxx.xx"
Keep for your records and basis information.
@rvahid
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