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Capitalizing property taxes on vacant land

How do I capitalize property taxes on vacant land
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4 Replies

Capitalizing property taxes on vacant land

You would make an election "pursuant to Treasury Regulation Section 1.266-1(b)".

 

See https://www.law.cornell.edu/cfr/text/26/1.266-1

Capitalizing property taxes on vacant land

@hoosterveld1 it's an annual election so must be done each year yo choose to capitalize those items. This will require you to paper file every year with the election

 

Capitalizing property taxes on vacant land

Short answer: you file by mail and attach a written statement.  Some other tax programs may allow attachment of statements when e-filing but Turbotax does not.  

 

Longer answer: you probably can't.

 

This is somewhat technical.  You can elect to capitalize costs that would be deductible, instead of deducting them.  Prior to 2018, carrying costs on investment property were an itemized deduction subject to the 2% rule.  Some people might choose to take the deduction (although it has a limitation, it is immediate) while other people might choose to capitalize their costs (they get the entire cost but only when they sell).  The tax reform law of 2017 eliminated the entire category of 2% itemized deductions for tax years 2018-2025.

 

I read an article from an accounting journal that put forward the idea that, since investment costs are no longer deductible, they are not eligible to be capitalized.  The counter argument was something like, the deduction isn't really eliminated, just temporarily suspended, so carrying costs can still be capitalized.  The article noted they had asked the IRS for clarification and the IRS had not responded.

 

So it is unclear whether capitalizing costs is even allowed for 2018 through 2025.  You might want to discuss with a professional especially if the amount is substantial.  You can try it and see what happens. 

Capitalizing property taxes on vacant land


@Opus 17 wrote:

Longer answer: you probably can't.

This is somewhat technical.  You can elect to capitalize costs that would be deductible....


The thread started by @hoosterveld1 references property taxes, which are still deductible after the TCJA.

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