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Capitalizing Property Taxes when Land is adjacent to Principal Residence

brendastanton
Level 1

Hello ~ I would like clarification on when can I Capitalize Property Taxes.  1. Let's say the taxpayer has an adjoining lot to their principal residence and the lot is unimproved.  Okay, to capitalize property taxes on the adjoining lot?  2. What if the adjoining lot to the principal residence has another home on it, like a mother-in-laws quarters?  What are the options?  Thanks for your help.

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IntuitJim
Employee
Employee

Brenda, thanks for joining the community! Just curious, is your taxpayer hitting the ceiling on the $10K of schedule A taxes and that is why you want to capitalize the taxes?  I think generally, yes, you may elect to capitalize the taxes on the lot, but the first step is always to determine the nature of the property (ie: residence, investment, farm, rental, business, etc).

  1. This sounds like investment property, where property taxes would be deductible on Schedule A as real estate taxes up to $10K, or capitalized.  Carrying charges include taxes you pay to carry or develop real estate. You can choose to capitalize carrying charges if they are otherwise deductible.
  2. If the residence is a second home, the property taxes would be deductible on Schedule A as real estate taxes up to $10K, or capitalized. OR, if taxpayer collects rent from Mom-in-law, the property would be Rental, and the property taxes would be deductible on Schedule E, or capitalized.

For more, see Carrying Charges on page 24, Pub 535:  https://www.irs.gov/pub/irs-pdf/p535.pdf

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IntuitJim
Employee
Employee

Brenda, thanks for joining the community! Just curious, is your taxpayer hitting the ceiling on the $10K of schedule A taxes and that is why you want to capitalize the taxes?  I think generally, yes, you may elect to capitalize the taxes on the lot, but the first step is always to determine the nature of the property (ie: residence, investment, farm, rental, business, etc).

  1. This sounds like investment property, where property taxes would be deductible on Schedule A as real estate taxes up to $10K, or capitalized.  Carrying charges include taxes you pay to carry or develop real estate. You can choose to capitalize carrying charges if they are otherwise deductible.
  2. If the residence is a second home, the property taxes would be deductible on Schedule A as real estate taxes up to $10K, or capitalized. OR, if taxpayer collects rent from Mom-in-law, the property would be Rental, and the property taxes would be deductible on Schedule E, or capitalized.

For more, see Carrying Charges on page 24, Pub 535:  https://www.irs.gov/pub/irs-pdf/p535.pdf

Thank you for choosing PTO!

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