Hello. I own vacant land for investment purposes. I have read several articles that property tax paid on vacant investment land is deductible ABOVE the $10,000 SALT limit. Where on TurboTax can I enter investment vacant land property tax as a deduction ABOVE and beyond the $10,000 SALT limit. Thank you.
Yes, property taxes paid on vacant land are deductible if you itemize your deductions.
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As you stated the SALT (State and local taxes) deduction is limited to $10,000 for 2018.
Hi, I have read that property tax for investment land can be deducted ABOVE the $10k SALT limit (I am at the $10k SALT limit via property tax on my home as well as state income tax).
Where on TurboTax can this deduction - above the $10k limit - be entered?
There is a bill that has been passed by congress that would increase the SALT value to $20,000. The senate will now have to consider it.
Key points of bill 218-206
I have read the same. Here is one article that states this logic.
I have looked in TT and cannot see where this can be input - as in this article where it states you should show the amount on Line 6 Sch A - Other taxes.
As stated in the article you referenced, if you claim to be a land developer you could deduct the tax as an expense, however, there are a few drawbacks.
If audited, you would need to show that you are in fact a developer, generating revenue in more than just one single year (the year you sell the property).
You would need to file a Schedule C since your business is land development. (Or some other business entity)
The gain on the sale of property would no longer be a Capital Gain, rather business income and taxed as such, including Self-Employment tax on the profit if applicable (Schedule C).
Normally, land is held and sold by an individual to produce a capital gain. In this case, taxes paid would only be allowed on that Taxpayer's Schedule A and included in the 10,000 SALT limit. If held long term, the tax on the Capital gain could be 0.
The article specifically mentions claiming this on Sch A, not Sch C.
"One of the activities described in Section 212 is the “management, conservation, or maintenance of property held for the production of income.” This section further states that “income” includes prior, current and subsequent years. It also states that “income” includes not only recurring income but also gains from the disposition of the property. Most real estate investors purchase property with the intention of selling it in the future at a gain. So, it appears that property taxes paid on real estate investment property would not be subject to the $10,000 cap.
Taxes paid on investment property should be reported as “Other Taxes” on Line 6 of Schedule A, Form 1040."
Yes, you will report this as personal property taxes on the Schedule A.
Hi, when using that entry, that tax number is included in the $10k SALT maximum limit. Please read my question again.
Be sure when you read these articles, they are from credible sources. Please read some of the comments in this Turbo Tax link. My position is that it is vacant land, not income producing, and held as a capital asset for investment purposes. This is a property tax on personal real estate that is subject to the Salt restriction.
I discussed this with two practicing CPA's who are with large firms, both agree it is not subject to the $10,000 limit and a Schedule A other tax deduction.
How to get it to work in TT is the question.
Individuals who own vacant land generally do not receive any income from the land and also are not entitled to any business deductions related to it. The real estate taxes paid on vacant land, before the passing of the Tax Cuts and Jobs Act, were an itemized deduction on Schedule A.
Taxes paid on investment property should be reported as “Other Taxes” on Line 6 of Schedule A, Form 1040. One note of caution, however, is that taxes are not a deduction for Alternative Minimum Tax purposes. Depending on the situation, including these additional tax deductions may not result in any less Federal Income Tax being owed. In those situations consideration should be given to making an election under Section 266 to capitalize the taxes paid to the basis of the property, thus reducing the amount of capital gain once the property is sold.
I have owned a vacant lot for 37 years and paid property taxes each year but did not get a deduction of the tax on my tax return. When I sell the lot can the taxes I have paid but not deducted for 37 years be added to the basis of the property?
under IRC 266 and REG 1.266-1 an anuual election was required to treat the taxes as part of the capital cost.
A taxpayer who owns unimproved and unproductive real estate can elect to capitalize annual taxes, interest on a mortgage, and other carrying charges.
at best if you have not yet file the 2022 return you could make the elction for the 2022 taxes (prior year's are lost).
Q. I have owned a vacant lot for 37 years and paid property taxes each year but did not get a deduction of the tax on my tax return. When I sell the lot can the taxes I have paid but not deducted for 37 years be added to the basis of the property?
A. No.
Real estate tax is/was only deductible as an itemized deduction. If you used the standard deduction, in the past, then you wouldn't have gotten any benefit.
However, If the property was classified as investment property, as opposed to personal use property, alternatively, taxpayers can elect to capitalize (add it to your cost basis) the carrying costs of unimproved and nonproductive real property (Regs. Sec. 1.266-1(b)(1)). The election is made with the tax return by its due date, including extension, by attaching a statement. You cannot wait until you sell the property, but must make that election each year. Attach the statement to the return and write “Filed pursuant to section 301.9100-2” on the statement. You cannot amend prior year returns to claim capitalization.
I have been reading various threads about capitalizing costs of undeveloped land, including property taxes paid. I also consulted with a CPA who advised me that I could elect to do this but was not clear how to do so using TurboTax. I see in the last posts from @Mike9241 and @Hal_Al that one must attach a statement to the return "describing the property and the expenses to which the election applies," but no instructions on how to do this using TurboTax. Must I simply print out my tax return and MAIL it in with the attached statement? 😟Will the TurboTax guarantee still apply if I don't file electronically?
I assume after reading all the posts that this election will not affect my actual tax return, but will serve as the only means of reducing my basis in the property and thus reducing (somewhat) the capital gains incurred when we eventually sell it. On a side note (just venting), it seems patently unfair to NOT make any adjustments for inflation when it comes to determining long-term capital gains. Clearly, $15,000 in 1995 was worth a lot more than the same dollar amount today - and vice-versa. Also, how is the average taxpayer to know about including a statement in order to capitalize the costs of owning land? We never considered the land we bought to be investment property - it just kind of turned into that after a while when it became clear we were never going to build on it and live there. I always assumed that we could deduct the taxes we paid every year on it at the time we sold it to determine capital gains. I know now that this is incorrect, but it feels very unfair.
Q. Must I simply print out my tax return and MAIL it in with the attached statement?
A. Yes
Q. Will the TurboTax guarantee still apply if I don't file electronically?
A. Yes.
Thank you @Hal_Al for your prompt response. Not the answer I wanted to hear, but I get it. Maybe someone at TurboTax can figure out a way for its users to add written statements to an electronic tax filing sometime in the future. For now, I guess I will be printing and mailing in my tax return, certified mail. Thanks again.