Tax, SDIRAs & Cost Segregation

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Don Darnell
  • Auburn, CA
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Adding Capitalize Carrying Costs text to 1040X cost $2000…

Don Darnell
  • Auburn, CA
Posted Nov 26 2022, 10:35

Hi, I own an unimproved lot and capitalize HOA fees and property taxes every year to increase the property basis by amending my taxes and adding something like the following "magic" text as required by the IRS:

"For tax year 2021, taxpayer hereby elects under Code Section 266 and IRS Regulations 1.266-1 to capitalize, rather than deduct HOA fees paid in the amount of $#### and $#### property taxes as carrying costs on a vacant lot that is unimproved and non-productive bare land. The lot is located: street address, city and state."

I do my own taxes using Turbotax and the software does not have the ability to upload the magic words when I file online so I file a 1040X with snail mail with no changes except for the magic text. I have been amending the returns for a number of years with no issues.

A few days ago got an IRS notice CP22A, with the notice stating the IRS made changes that I requested (1040X) and “there was a change to my investment gain or loss” and that I owe $2000 plus interest. Given the change I downloaded the various transcripts from the IRS expecting to see the updated Schedule D changes, but the amounts for short term and long term stock sales was the same plus my taxable income was the same as my initial return. Checking the IRS tax tables for my taxable income and the number matches what Turbo tax listed.

I called the IRS and spent hours waiting and finally talking with multiple agents. The staff was friendly, but could not point to why I owed $2000 in additional taxes given they were getting the same numbers as me. In the final conversation, the agent told me to request detailed information about the charge by mail only. I have made an appointment to talk face-to-face with an agent in late December to get this straightened out.

Lastly, I recently found the following link that lets Turbotax add the magic text to your original return so you can file online and don’t have amend your taxes.

https://ttlc.intuit.com/commun...

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