All Forum Posts by: Steven Hamilton II

Clearly you have way too much time on your hands. I'm buried in work and don't have time to argue a relatively minor matter of interpretation with you. Yes, the property is going to be placed in service; however, you are citing a case that does not have relevance. If I was going to cite a case it would be one such as richmond television v commissioner on start up costs. That said, Toth was specially allowed her expenses that were claimed as she was deemed currently operating.

You should read 195 https://www.law.cornell.edu/uscode/text/26/195

"(c)Definitions For purposes of this section—(1)Start-up expenditures The term “start-up expenditure” means any amount—(A)paid or incurred in connection with—(i)investigating the creation or acquisition of an active trade or business, or(ii)creating an active trade or business, or(iii)any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of such activity becoming an active trade or business, and(B)which, if paid or incurred in connection with the operation of an existing active trade or business (in the same field as the trade or business referred to in subparagraph (A)), would be allowable as a deduction for the taxable year in which paid or incurred.The term “start-up expenditure” does not include any amount with respect to which a deduction is allowable under section 163(a), 164, or 174."


Again, we are not talking about the sale or purchase of RE. We are talking about the tax incurred during the holding phase.

Now, I have tax returns to work on. 

Those costs are improvement costs and they would not be placed in service until the property is ready and available for rent.

This is very different from carrying charges.

We are not talking about taxes about acquisition or disposition we are talking about taxes incurred on property that is held and it currently is not held for collection of income as it has not been placed in service. 

I shared such well cited article as it discusses taxes rather thoroughly and includes applicable citations of authority across it. Those citations explain precisely the items we are discussing.

We are talking about carrying charges not acquisition or disposition taxes.

They are not 212 taxes as it is not yet carrying on production of income. That provision is to cover a rental not for profit. See IRC 164

"addition, there shall be allowed as a deduction State and local, and foreign, taxes not described in the preceding sentence which are paid or accrued within the taxable year in carrying on a trade or business or an activity described in section 212 (relating to expenses for production of income)."

This is investment property not yet used in carrying on a trade or business therefore they fall under 164(a)(2). Could it argues they aren't subject to the 10k limit maybe; however I'd prefer to capitalize them in this situation.

Here is a great article on the topic: https://www.lindsayandbrownell...

@Eammon you're over interpreting. Is it yet part of carrying on the activity? No, it is not.

They are not 212 taxes as it is not yet carrying on production of income. That provision is to cover a rental not for profit. See IRC 164

"addition, there shall be allowed as a deduction State and local, and foreign, taxes not described in the preceding sentence which are paid or accrued within the taxable year in carrying on a trade or business or an activity described in section 212 (relating to expenses for production of income)."

@michael plaks,

They must be currently deductible or capitalized under the 266election. You're being way conservative considering the law. It does not restrict it to vacant land in the IRC. 

 Keep them, digitize them. Two is one, one is none. Make sure you have backups of your documentation in multiple places.

 It still applies before an after TCJA. Real Estates taxes of property that is purely held for investment such as vacant land or a long term rental that is not in service may continue to be deducted on Schedule A subject to the 10k limit on state and local taxes. 

Technically you have to elect to capitalize them if you want to do so. (election under section 266) You can also review Publication 535 page 24
Here is a good read on the topic:
https://www.currentfederaltaxdevelopments.com/blog/2019/9/28/do-taxes-on-investment-real-estate-escape-the-10000-cap-it-seems-likely

"Carrying Charges
Carrying charges include the taxes and interest
you pay to carry or develop real property or to
carry, transport, or install personal property.
Certain carrying charges must be capitalized
under the uniform capitalization rules. (For information on capitalization of interest, see chapter 4.) You can elect to capitalize carrying
charges not subject to the uniform capitalization
rules, but only if they are otherwise deductible.
You can elect to capitalize carrying charges
separately for each project you have and for
each type of carrying charge. Your election is
good for only 1 year for unimproved and unproductive real property. You must decide whether
to capitalize carrying charges each year the
property remains unimproved and unproductive. For other real property, your election to
capitalize carrying charges remains in effect until construction or development is completed.
For personal property, your election is effective
until the date you install or first use it, whichever
is later.
How to make the election. To make the election to capitalize a carrying charge, attach a
statement to your original tax return for the year
the election is to be effective indicating which
charges you are electing to capitalize. However,
if you timely filed your return for the year without
making the election, you can still make the election by filing an amended return within 6 months
of the due date of the return (excluding extensions). Attach the statement to the amended return and write “Filed pursuant to section
301.9100-2” on the statement. File the amended return at the same address you filed the
original return."

 That applies to 1031 exchanges. If you take advantage of a deferred exchange you must keep the records for the entire transaction chain. 

Yes, this is something that I'd recommend reaching out to an Enrolled Agent to assist you with. You want someone who does a lot of representation work. The IRS will release a lien if it is causing a hardship as well. 

They are exactly right