The T/P has invested in several pieces of real estate over the last 3 to 4 years. He has borrowed on a Home equity LOC to buy and maintain the properties as well as pay carrying cost of insurance and utilities. He has empty lots on which he hopes to build and a house he hoped to sell which is now a rental.
He capitalized all the interest and expense on the properties without making a 266 election on any returns. He did not tell me he was doing this (of course). It came to light this year since he had rented the house for the first time. I took the capitalized expense as basis and began depreciation.
His other question was regarding the empty lots which he had contracted to have a house built and the builder failed to perform so he is out a fair bit of money he advanced the builder. His question was could he amend prior year returns to claim the interest in the year incurred. Can he amend a return to undo an election never made?
On looking at the old returns I see that he would not gain a tax benefit from amending to claim the interest. Therefore can he and/or should he amend the returns to make the 266 election?
Has anyone had an examination or know of a cite dealing with basis from capitalized expenses not backed up by the 266 election? He properly kept records and did not otherwise deduct the interest or taxes. He just failed, due to lack of knowledge, to make the election.
He capitalized all the interest and expense on the properties without making a 266 election on any returns. He did not tell me he was doing this (of course). It came to light this year since he had rented the house for the first time. I took the capitalized expense as basis and began depreciation.
His other question was regarding the empty lots which he had contracted to have a house built and the builder failed to perform so he is out a fair bit of money he advanced the builder. His question was could he amend prior year returns to claim the interest in the year incurred. Can he amend a return to undo an election never made?
On looking at the old returns I see that he would not gain a tax benefit from amending to claim the interest. Therefore can he and/or should he amend the returns to make the 266 election?
Has anyone had an examination or know of a cite dealing with basis from capitalized expenses not backed up by the 266 election? He properly kept records and did not otherwise deduct the interest or taxes. He just failed, due to lack of knowledge, to make the election.
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