How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Lane, JD, CFP, MBA Your Own Question

Lane, JD, CFP, MBA
Lane, JD, CFP, MBA, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 4539
Experience:  Providing Financial, Tax & Business advice since 1986
1929974
Type Your Finance Question Here...
Lane, JD, CFP, MBA is online now
A new question is answered every 9 seconds

Partnership owns real property (raw land) which it may sell

Customer Question

Partnership owns real property (raw land) which it may sell at some future date. Are property taxes currently deductible or should they be capitalized?
Submitted: 1 year ago.
Category: Finance
Expert:  Lane, JD, CFP, MBA replied 1 year ago.

Lane :

Hi,

Lane :

If the land is being held for resale, all taxes should be capitalized until the land is sold. At this point the taxes will be deducted as part of cost of goods sold.

Lane :

The only exception would be in the case of land that was originally held in a trade or business or a for-profit activity that becomes unproductive. In this case the taxes may continue to be deducted as before until the taxpayer's intent with respect to the land changes.

Lane :

See: Tsakopoulos v. Commissioner, T.C. Memo 2002-8

Lane :

Is there any intent to develop at all?

Lane :

Two questions: (1) have you just acquired the land and if not has your intent with respect to the use of the land changed? ... (2) how has the land been used for, say the last five years?

Lane :

I still don't see you coming into the chat, so I'll answer in a general fashion that should cover all the possibilities... My first answer DID have the implicit idea that you nay have had some intent to develop (given the partnership ownership) ... but let me give you the overview here, so you'll have a frame of reference or making a decision...

Lane :

Generally, property taxes may be deducted under three code sections: §162 - trade or business, §212 - for-profit activity, or §164 - investment.

Lane :

If this is simply land, held for investment ... NO intent to develop ... (by the way, the court held, in Tsakopoulos, that the determination as to the proper treatment is made at the time taxes are paid, not when the property is acquired.) then §164, specifically §164(a)(1), allows deduction for real property taxes if not deductible or required to be capitalized by another section. Taxes deducted under this section are itemized deductions for individuals not subject to the 2% floor. There are itemized deductions because they are not specifically allowed in computing adjusted gross income by §62 and not included in the definition of miscellaneous itemized deductions by §67. Partnerships and S corporations report these taxes as a separately stated item. Individuals report these deductions on schedule A.

Lane :

In summary, there are two outcomes for real property taxes paid on undeveloped land. It can be deducted under §164 as an itemized deduction. Or, if the owner anticipates developing the land in some way, it should be capitalized. Alternatively, the owner may capitalize taxes otherwise deductible under §164 by making a §266 election. Depending on the nature of the land holdings this election may be permanent or may be an annual election.

Lane :

... was hoping you'd come online here, and provide more detail, but this should give you enough to make an informed decision

Lane :

Let me know ...

Lane :

Lane

Lane :

f this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.

HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

Expert:  Lane, JD, CFP, MBA replied 1 year ago.

Hi Strong,

... just checking back in here, as I never saw you come into the chat.

Let me know if you have questions,

Lane


(positive feedback appreciated)

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Rakhi Vasavada

    Financial and Legal Consultant

    Satisfied Customers:

    2073
    Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
< Last | Next >
  • http://ww2.justanswer.com/uploads/RA/rakhi.v/2012-7-3_14374_RakhiVasavadaL.64x64.jpeg Rakhi Vasavada's Avatar

    Rakhi Vasavada

    Financial and Legal Consultant

    Satisfied Customers:

    2073
    Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
  • http://ww2.justanswer.com/uploads/BU/BusinessTutor/2012-2-2_115741_Kouki2.64x64.jpg Manal Elkhoshkhany's Avatar

    Manal Elkhoshkhany

    Tutor

    Satisfied Customers:

    1890
    More than 5000 online tutoring sessions.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    1755
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JK/jkcpa/2011-1-16_182614_jkcpa.64x64.jpg JKCPA's Avatar

    JKCPA

    CPA

    Satisfied Customers:

    838
    Bachelors degree and CPA with Accounting experience.
  • http://ww2.justanswer.com/uploads/starside8/2010-2-16_55433_DSCN1175.JPG Eric's Avatar

    Eric

    Financial Manager

    Satisfied Customers:

    558
    Loan servicing, counseling and real estate expert. Foreclosure Expert and Financial Planner.
  • http://ww2.justanswer.com/uploads/FA/fastfile/2011-12-15_23139_Klein2011small.64x64.jpg R. Klein, EA's Avatar

    R. Klein, EA

    Accountant

    Satisfied Customers:

    397
    Intuit Ask a Tax Expert. QuickBooks Certified Pro Advisor (all editions)
  • http://ww2.justanswer.com/uploads/dkaplun/2009-05-17_173121_headshot_1_2.jpg Dimitry K., Esq.'s Avatar

    Dimitry K., Esq.

    Attorney

    Satisfied Customers:

    324
    NASD Licensed Rep, 1997-2001, Business Attorney
 
 
 

Related Finance Questions

Chat Now With A Financial Professional
Lane, JD, CFP, MBA
Lane, JD, CFP, MBA
JD, MBA, CFP, CRPS
770 Satisfied Customers
Providing Financial, Tax & Business advice since 1986