Capitalize Interest

[Snaggletooth]

Taxpayer has been deducting some $2000 in "investment interest" as an itemized deduction. This year, there are not enough itemized deductions to exceed the standard deduction. Deduction is thus wasted.

The investment interest is wraparound mortgage interest on an installment sale of real estate. Can we make an election to capitalize this wasted interest effective this year, without making it retroactively?

[Roland Slugg]

Well, it can't be capitalized. Interest can only be capitalized on unproductive real estate (Code §266) and when acquiring or constructing property (Code §263A).

However, that interest sure seems like "investment interest" to me. Report it on F-4952, where it will offset investment income. Any excess of IE over II can be carried over and used the next year.