geezus...i just posted a lengthy info set up to my question and for some reason it looks like i was logged out so lost it....here is the short version....my client owns 10 or so properties (houses/condo/land) via several LLCs most taxed as s-corps....i have always capitalized interest and other costs of carrying vacant land....but a tax atty has advised her she should now and in the past have taken these deductions because she is a "dealer".....i have not been able to verify this....everything i read says unless the land is producing rental income.....forget it...now i'm not even sure that if i cannot deduct it....is it capitalized or lost........thanks for any responses........PS: all this COD income from foreclosures etc...gonna be a nightmare. (if my other post suddenly shows up...sorry for duplicate)
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I would agree
based on the facts and circumstances of being a "dealer" in land and real estate that interest is an operating expense rather than a capital investment. I think this would hold up under scrutiny unless there is a statutory requirement (like there is for new construction) that prevents it.
However, consider also the consequences of claiming these properties as "inventories" rather than investments. No favorable capital gains, just ordinary sales and profits become ordinary income. On the other hand, if she has had a downturn in values, she can "sell" these properties and take an ordinary loss instead of being limited to $3000 a year.
I don't believe she can claim interest as if these properties are inventoriable, then claim capital gains treatment when she sells them.
Sorta like the Stephen King movie "Needful things" where people accepted the thing they thought they wanted and it always turned on them before it was all over.
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