Where do you claim expenses for non-rental R/E investment property such as R/E taxes, Utilities, etc. on tax return. Property was renovated for 5 years and then sold last year. Taxpayer never deducted any expenses during those year. He said is former tax preparer said it would get handled when the property was sold. Intention of investment was to flip property.
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If it was just "investment" (Form 8949/Schedule D), the interest and taxes had to be taken each year OR an election had to be made each year to capitalized those costs (including utilities and other "carrying costs"). If that election was made each year, those costs are added to Basis.
If it is a flipping business (such as on Schedule C), I think the same rules apply, but maybe there would be some flexibility with adding those cost to the COGS/Inventory.
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It would appear that the expenses you list might not be available for any deduction. You should review Reg. 1.266-1 which permits certain expenses to be added to basis but I think you might be out of luck due to the requirement that the election to capitalize the expenses must be done on an annual basis. I’m going by memory so definitely look at the regulation.Originally posted by S&D Associates View PostComment
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If your client flipped the house, the house is inventory and all expenses are COGS on his Schedule C the year he sells. (You stated his intention was to flip property.) An annual election could be a requirement, but you'll have to follow research that as has been stated. Start with was it an investment or was it a flip?Comment
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Regs. Sec. 1.266-1(b)(2) provides that "an item not otherwise deductible may not be capitalized under [Sec.] 266."
As others have stated start here.Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDRComment
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