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March 2, 2023
Question

Writing off expenses on raw land

  • March 2, 2023
  • 1 reply
  • 0 views

We bought raw land as an investment and have financing on it. Our expenses include:

  • Interest,
  • Property Taxes,
  • HOA fees
  • Water 

I've seen some places that say I can only write only the interest off on Schedule A, and none of the other expenses. I've seen other places say I can write all expenses off on Schedule E.  Which is correct?

    1 reply

    March 2, 2023

    The only one of the items you listed that is potentially deductible on your tax return is the property tax.  It can be deducted as an itemized deduction, if you itemize, and subject to the limitation on state and local tax.  

     

    You can make a Section 266 election that allows taxpayers to capitalize taxes, interest, and carrying charges that would otherwise be lost or limited under other provisions in the tax code. The election is made on a year-by-year basis and can be for any or all of those three categories of expenses.  

     

    The election is made by attaching a statement to the tax return for the taxable year in which the election is to be effective. The election must be made no later than the due date, including extensions, of the taxpayer's return for such year.


    Where to File
    The election statement is attached to taxpayers income tax return filed within the required time periods and mailed to the designated Internal Revenue Service Center.

     

    If you don't want to mail your return, you can e-file without the election and then file an amended return by mail with the election.  

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    Hal_Al
    Employee
    March 2, 2023

    The problem with capitalizing all, typical, carry costs after the TCJA is the following (from the Reg):

     An item not otherwise deductible may not be capitalized under section 266

     As a result, taxpayers can now only capitalize not much more than property taxes and mortgage interest (if any).