Discussion:Property Taxes Pre-Paid
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Discussion Forum Index --> Tax Questions --> Property Taxes Pre-Paid
| 29 December 2006 | |
| Two questions:
Can a taxpayer pay commercial property taxes for 2007 (in 2006) and deduct them in 2006? On a different client: Are property taxes paid during construction of the building deductible or capitalized? | |
| December 29, 2006 | |
| In Michigan, the 2007 property taxes aren't billed to taxpayers until July and December 2007. Chances are you are referring to the 2006 property taxes with a due date in 2007.
2) Property taxes paid during construction of the bldg are deductible in the year paid. | |
| 29 December 2006 | |
| Regarding 2), Reg. 1.266-1. | |
| 29 December 2006 | |
| You are correct. In AZ the April payment is for the balance of the prior year. So paying them today the taxpayer can use the deduction this year. Correct?
On the second item - from the link Solomon pointed me to it appears the tp can elect to deduct the taxes or include them in the building costs. Correct? All interest during construction is capitalized - Correct? TP had to pay interest to an entity for the use of $100,000 to maintain their bank acount minimum balance until construction was completed. Is this interest deductible or capitalized? | |
| December 29, 2006 | |
| Yes and yes.
My understanding on the interest is it can be deducted or capitalized. | |
| 29 December 2006 | |
| May be Reg. 1.263A-8(b) would have to be applied first. | |
| December 29, 2006 | |
| Here is a description of when interest must be capitalized (in plain English): Capitalization of Interest | |
Michaelstar (talk|edits) said: | 29 December 2006 |
| When prepaying property taxes like this, one needs to be paying attention to whether the t/p is in the alt min. If the t/p is in the alt min, I would not suggest prepaying such preference items. One can also elect to capitalize the r/e taxes pursuant to reg 1.266-1(b)(1)(ii) (improved real property) on a timely filed t/r. | |
Msmith7305 (talk|edits) said: | 29 December 2006 |
| Michaelstar-
I don't read that section as applying to property taxes on improved property | |
Michaelstar (talk|edits) said: | 29 December 2006 |
| Msmith7305 - you are partially correct in what I said - my mistake, I appreciate your catching this so that others are not mislead either. That section does relate to property taxes being allowed to be capitalized on property under improvement or development at the election of the t/p which needs to be elected annually. | |
| 31 December 2006 | |
| Property taxes incurred during the construction of real property must be capitalized - see Reg. 1.263A-1(e)(3)(ii)(L). The election under Sec. 266 applies only to taxes and carrying charges that are otherwise deductible - see Reg. 1.266-1(b)(2). | |
