TP remodels shop to an apartment and incurs taxes & insurance expenses in addition to remodel expenses, does not itemize. I believe the election to capitalize carrying charges is made only for taxes since the insurance & remodel costs are capitalized by default, correct?
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What taxes are you referring to? If it's the real estate taxes you have in mind, then no, they can not be capitalized. The election to capitalize real property taxes is only permitted for "unimproved and unproductive real property." (Regs 1.266-1(b)(1)(i)) For all other real property the annual taxes may only be deducted ... on Schedule A, C, E or F in most cases.
An election to capitalize the insurance is permitted. Regs 1.266-1(b)(1)(ii)(d)Roland Slugg
"I do what I can." -
Yes, real estate taxes. What is the definition of unproductive real property? I thought if it is not placed in service yet since the taxpayer is remodeling that is called unproductive? Raises also the question if it is still unproductive if remodel is finished but TP does not actively seek tenant yet.Originally posted by Roland Slugg View Post
Since insurance is not otherwise deductible as long as property is not placed in service isn't it capitalized by default? Maybe I have all kinds of misconceptions? I should add that this property is being converted from personal use. Insurance expense deduction might need to wait until property is actually available for rent. Is different than if it was bought for investment purposes from the start.Comment
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