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Vacant Land - Can I show it on Schedule e?

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Level 2

Hi,

I have a client that their main business is rental property but they also have some land for future development.  Can I include the land on schedule e and deduct the property taxes that way?  Even when he was not trying to lease it.

Thank you for your consideration

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Level 10
Level 10

attach as a pdf to the return. It should state something like, For tax year 2019 taxpayer hereby elects under Code Section 266 and IRS Regulations 1.266-1 to capitalize, rather than deduct, property taxes  on "the address of the vacant lot."

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13 Replies 13
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Level 15

No. Schedule E is for Royalty and Rental.


ex-AllStar
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Level 15

Sch A as investment interest, maybe?  Likely should be capitalized into basis.

Former Chump... umm.... AllStar.
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Level 15

think you have to elect to capitalize carrying costs. Not 100% sure.

If the land is held for investment, the taxes might be deductible on Sch A.


ex-AllStar
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Level 11

@abctax55   He's asking about taxes, not interest.

@sjrcpa   I think you're right about the election to CAPITALIZE and I think it has to be done on the first year's return.  He can look it up.  Bet you an N-95 that the taxpayer already has $10K in taxes to deduct.

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Level 15

Oops...

Former Chump... umm.... AllStar.
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Level 10
Level 10

This is from Nolo, "

Property Taxes

An investor can also deduct property taxes paid on a vacant land as a personal itemized deduction on Schedule A. This deduction is not limited to the amount of net investment income. Nor is it subject to the $10,000 annual limit on deducting property tax paid on a main or second home. The $10,000 limit, enacted for 2018 through 2025 by the Tax Cuts and Jobs Act (TCJA) does not apply to investment property."

Here is the link for complete link:https://www.nolo.com/legal-encyclopedia/tax-deductions-vacant-lands.html

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Level 2

Thank you for your reply.  In the Schedule A I do not see a line for the deduction of the property taxes that are related to investment property that is not subject to the $10,000 limitation.

 

Am I missing a line designation that is separate from number 5 "Real Estate Taxes" where I can include investment property taxes that are not subject to the $10,000 limitation?

 

Thank you again,

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Level 10
Level 10

Schedule A line 6. 

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Level 15

§266 is an annual election.  It doesn't have to be made in the initial year placed in service, only that it be made with the original return for the relevant tax year.

If the taxpayer will get no tax benefit for the carrying charges such as real estate taxes (and mortgage interest), it would make sense to elect capitalization so long as the land is unimproved and unproductive.

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Still an AllStar
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Level 10
Level 10

Each year you attach a statement to your tax return stating what expenses you want to capitalize. you can choose interest and property taxes one year and only interest the next year, as it all depends on clients situation each year.

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Level 2

Thank you for your reply.  Where would you attach the statement?  The vacant land does not show in any place in tax return.

 

Thank you again

 

 

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Level 10
Level 10

attach as a pdf to the return. It should state something like, For tax year 2019 taxpayer hereby elects under Code Section 266 and IRS Regulations 1.266-1 to capitalize, rather than deduct, property taxes  on "the address of the vacant lot."

View solution in original post

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Level 15

@FabrodDepending on your tax software, you may be able to populate the stock election statement so that you don't have to prepare one and attach it to the return.  Lacerte/PTO has that statement available but didn't check ProSeries.

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Still an AllStar