$2,000,000 mortgage

[BOB W]

Can I capitalize the non-deductible interest of a $2,000,000 mortgage after if deduct the $750,000 related interest?

[Rapid Robert]

No. See Chapter 4, Pub 535, "Capitalization of Interest".

"Under the uniform capitalization rules, you must
generally capitalize interest on debt equal to
your expenditures to produce real property or
certain tangible personal property. The property
must be produced by you for use in your trade
or business or for sale to customers. You cannot
capitalize interest related to property that
you acquire in any other manner."

See also "Deducting vs. Capitalizing Costs" in Pub 551. I don't see how mortgage interest on a personal residence could be considered carrying charges.

Finally, "The procedures for applying the uniform capitalization rules are beyond the scope of this publication. For more information, see Regulations sections 1.263A-8 through 1.263A-15 and Notice 88-99, which is in Cumulative Bulletin 1988-2." (Pub 535).

EDIT: I guess it's possible that the Uniforum Cap Rules are only meaningful in a business context. We are talking personal interest here, which by default is non-deductible (home mortgage and student loan being two exceptions). It's kind of like proving a negative -- it's clear the interest in question (excess over the limit) is not deductible, but where is there a law or reg that states that it is not allowed to be capitalized, in a non-business context?

Of course, if it was allowed, everyone with a big mortgage would be doing it, but they aren't. So we know the answer, but still hard to pin down exactly why.

[BOB W]

RR- Thank you for your reply.

Thanks for your update. By capitalization I mean adding to basis and not to be amortized.