TP bought land years ago. Financed it and has been carrying the interest on form 4952. now about 9k. TP sold the land at a loss. Since it was a loss none of the interest can be used if I read 4952 right. So, can I add the unused interest to the basis and wipe out the investment interest on the 4952 there by increasing the loss and the carryover. At this point TP has no other investments
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Further research has indicated I could deduct it this year or add to the basis of the property.(Pub 550 page 5). TP has no other INVESTMENTS. It would seem to me to use it this year rather than increase the loss carryover to future years. Is this a reasonable assumption? -
The taxpayer can elect to capitalize the interest he paid in 2016 on the related loan. If no similar elections were made in the prior years, and from your post it appears there were no such elections, then that prior years' interest must continue to be treated as investment interest subject to the F-4952 limitation.
The T/P could have made an election each year to capitalize that year's interest, but since he did not do that, he can not do so now. He can only capitalize the interest he paid in 2016. If you read someting contrary to this in IRS Pub 550, I suggest you re-read it.
See Code §266 and Regs §1.266-1(b)(1)(i). For information on how to make the election to capitalize, see Regs §1.266-1(c)(3).Roland Slugg
"I do what I can."Comment
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From what I can tell looking back at prior returns the interest was reported on Form 4952. Has created a large number since 2012. Now that the underlying property has been sold at a LOSS can the interest now be used on Sch-A, including the carryover. This was unimproved land. I did not find in the old returns that an election was ever made.Comment
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