Discussion:Real Estate Taxes included in basis in computing Gain or Loss?

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Discussion Forum Index --> Tax Questions --> Real Estate Taxes included in basis in computing Gain or Loss?


Kendaniel (talk|edits) said:

31 July 2006
Real Estate Taxes are deductable as an itemized deduction for individuals if they itemized. If a person has not itemized over the years, is it prohibited and/or permissable in the code and the regs to include them in basis. I have been believing for a lot of years that they can be. Can anyone tell me where I got this idea, because I cannot seem to find any support at this time.

Scot1 (talk|edits) said:

13 August 2006
General tax benefit rule allows for an addition to basis for items that are normally deductible. If the taxpayer was unable to itemize his deductions and therefore not get any tax benefit of the deduction, then the un-deducted real estate taxes paid over the years can be added to his basis.

Skhyatt (talk|edits) said:

13 August 2006
would that fall under Reg.Sec. 1.266-1(b)?

Solomon (talk|edits) said:

13 August 2006
I don't see Reg 1.266-1 applying to a residence that is not under construction. Neither in the itemizing of carry charges nor in the examples is there anything about the question in the post.

Skhyatt (talk|edits) said:

13 August 2006
In reading TheTaxBook, it refers to that cite in saying that a taxpayer can elect to capitalize property taxes, if they can't otherwise deduct them on Sch. A. I've read that section and am having trouble getting that out of the wording also. Am I missing something?

Chautauqua (talk|edits) said:

13 August 2006
My understanding is that real estate taxes on unimproved and unproductive property can be capitalized if you make an annual election to do so, under IRC 266. There may be similar elections available for mortgage interest (subject to interest capitalization rules) and carrying charges.

There may be also such capitalization of similar charges for depreciable property, but I am not familiar with it.

Skhyatt (talk|edits) said:

13 August 2006
More feedback on this please. I've not heard of this before, where you can capitalize property taxes if unable to deduct on Sch A.

Solomon (talk|edits) said:

14 August 2006
I think a 266 election would be valid only for construction or subsequent additions. Don't think it applies at all to the original posted question.

Reg

Dennis (talk|edits) said:

14 August 2006
Reg. 1.266-1(b)(1)(ii) In the case of real property, whether improved or unimproved and whether productive or unproductive: Cited withour comment, except to say if you can capitalize you would still have to make the election annually. You can't just add the amounts to basis.

Riley2 (talk|edits) said:

14 August 2006
Solomon in 100% correct.

Reg. 1.266-1 is one of the most misunderstood regulation sections in the book. Regulation § 1.266-1(b)(1)(i) allows a taxpayer to elect to capitalize interest and taxes on unimproved property. Regulation §§ 1.266-1(b)(1)(ii)(a) and 1.266-1(b)(1)(ii)(d), when read together, allow a taxpayer to elect to capitalize interest and taxes on property under improvement or development – whether improved or unimproved. The property described in the original post is neither unimproved or under improvement or development, and therefore, no election is available.

Dennis (talk|edits) said:

14 August 2006
My problem with this is that there is clear authority to capitalize expenses for a personal residence while it is being constructed or improved. (b)(1)(ii)(d) Who is to say when taxpayer has finished improving his personal residence?

Solomon (talk|edits) said:

14 August 2006
Facts and circumstances.

Green hunter (talk|edits) said:

14 August 2006
is this for a personal residence or non personal (i.e. investement property). Maybe i misunderstood but the election under sec. 266 I was under the understanding does not apply to personal real property.

Solomon (talk|edits) said:

14 August 2006
Regs specifically mention personal residence.

Dennis (talk|edits) said:

14 August 2006
Common situation. RE tax for AMT taxpayer. I have elected for vacation home under construction. Have not taken the position X marks the spot for the addition, however...?

Kendrick (talk|edits) said:

14 August 2006
Dennis brings up a good point that has me thinking. When you lose a real estate tax deduction on your personal home because of AMT, can you then increase the basis in your personal home by this amount? I would expect not, but does anyone have a comment on this?

Kendrick (talk|edits) said:

14 August 2006
Dennis brings up a good point that has me thinking. When you lose a real estate tax deduction on your personal home because of AMT, can you then increase the basis in your personal home by this amount? I would expect not, but does anyone have a comment on this?

Death&Taxes (talk|edits) said:

14 August 2006
An like situation concerns those 'poor' people who can't deduct the interest on acquisition debt in excess of $1.1 million. In either case, it fails the 'can you say it without smiling?' test as we used to say.

Solomon (talk|edits) said:

6 September 2006
Regarding the annual election with property that qualifies, see PLR 200629024 issued July 21, 2006. Extension was granted under 301.9100 for prior years in which the election was not made.

Dennis (talk|edits) said:

6 September 2006
Cute. I love the allowed excuses. Return too complex for taxpayer to understand. Taxpayer relied on accountant who was clueless.

PLR 200629024

Ekcpa (talk|edits) said:

24 March 2009
I just want to be clear. We agree that real estate taxes on a personal residence or second home can not be capitalized unless it is under construction?

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