Capitalizing mortgage interest and tax

[jmc]

Reg §1.266-1(b)(1)(ii) says an election can be made to capitalize mortgage interest and tax instead of deduction. Can it be applied to personal residence on Sch. A?

[Roland Slugg]

Dear jmc

No. The Regs you cited go on to say (after items (a) thru (d) are listed): "... up to the time the development or construction work has been completed."

Interest and property taxes on someone's personal residence, assuming it is not under construction or in the process of a major addition or remodel, are only deductible on Schedule A. Even if it were undergoing a major addition or remodeling, I'm sure a reasonable allocation would need to be made, and only the interest and taxes for the addition/remodel could be capitalized.