Oversea Property

[AccTaxMan]

Taxpayer had a property in a foreign country. He had let his father live there ever since it was purchased until it was sold earlier this year. As for the mortgage interest that he had paid through the years, can he add to the cost basis of the property in order to calculate the capital gain on the sale?

[DaveinTexas]

No to the capitalization

Taxpayer had a property in a foreign country. He had let his father live there ever since it was purchased until it was sold earlier this year. As for the mortgage interest that he had paid through the years, can he add to the cost basis of the property in order to calculate the capital gain on the sale?

The mortgage interest would be deductible for the taxpayer, as long as he is not already deducting interest on a primary and second home. I do know that you can't capitalize interest on a property other than vacant land or unimproved property such as an unfinished home or building. See treasury Reg 1.266-1(b)(1) for the election statement.

If he can deduct the interest and itemize, you might want to consider filing amended returns, at least for 2009 thru 2011.