Land

[TAX]

Client has land for two years. This is in Florida. It is an investment property.

Every year he pays property tax & interest

(1) Can he take deduction on sch A? I think not because it is an investment property and cost must be accumulated and then taken on sch D when he sales land.
Does this sound right?

(2) Would it make any difference if Land was in LLC? He has 4 other properties in LLC.

Thanks!

[erchess]

I have waited to post on this

but here goes. Maybe thread will get more attention now that there has been an answer.

I don't know whether the land being in an LLC would matter.

My opinion is that he can put the taxes on Schedule A but not the interest unless and until he puts on the land a "home". Home can be very shabby, even a tent or a lean-to but there has to be sanitary facilities (even an outhouse and hand pump) cooking facilities (even an out door fire ring or a one burner alcohol stove) and a place to sleep even on a bedroll. There might have to be a place to eat. I am sure TTB can answer this in the section on mortgage interest. I am quite sure that the IRS will not hold against him the fact that his real reason for buying the land is not its service as a vacation spot but as an investment.

[Maribeth]

Or he can treat it as investment interest expense. Take the interest to Form 4952 and deduct it on Schedule A to the limit of his investment income Unused amount will carryforward until it is all used.

Maribeth

[TAX]

but here goes. Maybe thread will get more attention now that there has been an answer.

I don't know whether the land being in an LLC would matter.

My opinion is that he can put the taxes on Schedule A but not the interest unless and until he puts on the land a "home". Home can be very shabby, even a tent or a lean-to but there has to be sanitary facilities (even an outhouse and hand pump) cooking facilities (even an out door fire ring or a one burner alcohol stove) and a place to sleep even on a bedroll. There might have to be a place to eat. I am sure TTB can answer this in the section on mortgage interest. I am quite sure that the IRS will not hold against him the fact that his real reason for buying the land is not its service as a vacation spot but as an investment.

Thanks.

I will take property tax on A now. Interest will be added to base and when he sales it then I can take it on sch D by increasing cost of land.

[erchess]

I like Maribeth's suggestion

that you treat the interest as investment interest on Form 4952. Depending on what other investments he has, he could even recover some or all of the interest this year or at any rate before he sells the land.

I do have one question for Maribeth or anyone else who knows - is there a limit on how far into the future investment expenses may be carried if unused?

[Maribeth]

TTB Page 4-13 - there is no limit on how many years it can be carried forward.

And it can be nice when you've carried it forward for a few years and then the property sells and you can deduct it all. (of course, with making the election to treat some of the capital gain as investment income).

Maribeth