Capitalize or current expense

[Bill Tubbs]

Taxpayer (partnership) bought land and is starting to build to duplex. They will then either rent out or sell the duplex. The costs of installing the driveway and the conditional use permit I understand would increase the cost basis of the property (capitalized) instead of being a current expense. Question is: would the property taxes also be capitalized or is that treated as a current deductible expense?

Thanks,
Bill

[Gretel]

Taxpayer (partnership) bought land and is starting to build to duplex. They will then either rent out or sell the duplex. The costs of installing the driveway and the conditional use permit I understand would increase the cost basis of the property (capitalized) instead of being a current expense. Question is: would the property taxes also be capitalized or is that treated as a current deductible expense?

Thanks,
Bill

Property taxes can be treated as current expense or, by election, treated as carrying charge and be added to basis.

[JG EA]

Property taxes can be treated as current expense or, by election, treated as carrying charge and be added to basis.

I don't think you have to do an election for capitalized expenses. You have to do an election only when the the expenses are not required to be capitalized, can be currently deductible, and the TP chooses to add them to basis instead.

[Gretel]

I still believe it is an election. See: http://law.justia.com/us/cfr/title26...1.0.5.177.html

[JG EA]

IMO if you have to capitalize it is not an election. So, no schedule would be required on the return. (Because you can't take it currently.)

[Gretel]

IMO if you have to capitalize it is not an election. So, no schedule would be required on the return. (Because you can't take it currently.)

I think we have two different scenarios. The link I posted related to a self-constructed asset. I am doing more research but still believe if T/P keeps asset as rental real estate taxes can be deducted or capitalized.

I agree with you, JG, if the project ends up as inventory and is sold.

[JG EA]

Sorry didn't read very well did I.