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 Lev Your Own Question

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22648
Experience:  Taxes, Immigration, Labor Relations
Type Your Tax Question Here...
Lev is online now
A new question is answered every 9 seconds

We have an LLC with 2 individual members which owns a tract

Resolved Question:

We have an LLC with 2 individual members which owns a tract of land held for future appreciation. Only activity in 2008 was payment of real estate taxes and interest on the mortgage which was used to acquire the property. LLC taxed as a partnership. Both members are personally liable on the loan.
How are these items reported on Form 1065, Schedule K-1 Part III and on members’ individual tax returns?
Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.

You are subject to the uniform capitalization rules if you do any of the following in the course of a trade or business or an activity carried on for profit:

  • Produce real or tangible personal property for use in the business or activity
  • Produce real or tangible personal property for sale to customers
  • Acquire property for resale. However, this rule does not apply to personal property if your average annual gross receipts are $10 million or less

Base on your information (1) you are holding the tract of land in your course of a trade or business - because it is held in LLC; (2) the property was acquired for resale - therefore you are subject to the uniform capitalization rules.

 

Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for production or resale activities. Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property.

 

According to the uniform capitalization rules (UNICAP) for costs that benefit or are directly associated with the production activities should be capitalized.

Indirect Costs Required to be Capitalized

  • Indirect labor costs
  • Officers compensation
  • Pension and other related cost
  • Employee benefit expenses
  • Indirect material costs
  • Purchasing costs
  • Handling costs
  • Storage costs
  • Cost recovery allowances on equipment, including depreciation and amortization
  • Depletion
  • Rent
  • Taxes
  • Insurance
  • Utilities
  • Repairs and maintenance
  • Engineering and design costs
  • Spoilage
  • Tools and equipment
  • Quality control
  • Bidding costs
  • Licensing and franchise costs
  • Interest
  • Capitalizable service costs

Indirect Costs Not Required to be Capitalized

  • Selling and distribution costs
  • Research and experimental expenditures
  • IRC section 179 costs
  • IRC section 165 costs
  • Cost recovery allowances on temporarily idle equipment and facilities
  • Taxes assessed on the basis of income
  • Strike expenses
  • Warranty and product liability costs
  • On site storage costs
  • Unsuccessful bidding expenses
  • Deductible service costs

Based on your information - real estate taxes and interest on the mortgage should be capitalized - or added to the basis of the property.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22648
Experience: Taxes, Immigration, Labor Relations
Lev and 7 other Tax Specialists are ready to help you

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:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • 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:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.