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Expense vs Capitalize Prior to Storage Facility in Build Out Phase

mtw
Level 1

I have an LLC client that is in the construction phase of the buildout of a storage facility. This entity will be considered a small business with gross receipts under $25M.  The facility is expected to open in 2019. Can we expense "indirect expenses" (loan interest, property taxes, insurance) on the 2018 tax return? 

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IntuitJim
Employee
Employee

Matt, thank you for joining our community! Based on your facts, For Federal, I think you have 2 choices: 1) an investment property where investment interest may be deductible on 4952/ Schedule A up to investment income, property taxes would be deductible on Schedule A as real estate taxes up to $10K, insurance would not be deductible OR 2) you have pre-productive expenses that should be capitalized until the property is income producing. Carrying charges include the taxes and interest you pay to carry or develop real property.

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

Matt, thank you for joining our community! Based on your facts, For Federal, I think you have 2 choices: 1) an investment property where investment interest may be deductible on 4952/ Schedule A up to investment income, property taxes would be deductible on Schedule A as real estate taxes up to $10K, insurance would not be deductible OR 2) you have pre-productive expenses that should be capitalized until the property is income producing. Carrying charges include the taxes and interest you pay to carry or develop real property.

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

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