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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15447
Experience:  15years with H & R Block. Divisional leader, Instructor
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As an investment we purchased as individuals raw land on both

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As an investment we purchased as individuals raw land on both sides of a Montana river in 1996. The property was divided in 2005 and 1/3 sold profitably. We are experiencing serious bank erosion issues caused by the river during spring snow melt runoff. To protect our remaining investment the necessary permits have been secured for a bank stabilization project that will be done in December at an approximate cost of $20,000. We do not have a house on the property. We have built 3 small maintenance and equipment storage buildings. How do we properly deduct the $20,000 stabilization project? Is there a tax benefit available for having constructed the buildings? Thank you.

Robin D. :

Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.
When you add an improvement to land, the IRS requires your to capitalize this cost rather than reporting it as an expense. This would mean that you add the cost of the stabilization to the basis of the property.
The buildings are not a part of a business or rental so they too would add to the cost of the property and increase the basis but you would not deduct their costs untill you sold or changed the use of the property to business.


Robin D. :

My goal is to give you excellent service. If you are satisfied, please rate me. If you have follow-up questions on this same topic, use the reply box below. To start a new conversation with me on a new topic request me again.

Customer:

Is there any filing required for the capitalization in the year which the expense is incurred? Or is the step up in basis simply taken in the year of sale? Thank you.

Robin D. :

The year of sale. You would need to retain all your records for the improvements so you would have the increase in basis substantiated

Customer:

Very well. Thank you.

Robin D. :

You are most welcome.

Robin D. :

Your positive rating is always thanks enough.

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