Taxpayer purchased two properties that he intends to tear down and rebuild. How should the mortgage interest and property tax on these properties be treated (capitalize both or deduct property tax and claim interest as investment interest?)
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I expect the reason you have not received any other comments is because it is not clear as to your clients intent or true status with these properties. Any reply could be wrong if the clients intent or status is different than that assumed. I would expect that since this client intends to "build" that he may not be holding the property as an investment as that term is considered, rather holding the property as a developer. As a developer both taxes and interest during normal construction period (2 years as I recall) are usually capitalized as cost basis. However, if your client is truly holding as an investor, the expenses may be deductible on 1040 Sch-A, Misc. Not a very desirable deduction method.
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