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I bought land to build a house in 2007 and never built the…

I bought land to...

I bought land to build a house in 2007 and never built the house. I was living in another state and couldn't move after I purchased the land because I was taking care of my mother. in 2017 I sold the property. I have paid interest, HOA fees and property tax for 10 years and never itemized any of these expenses. can I itemize these expenses on my 2017 taxes, (now that I have sold the land) and what form would I use? my former tax CPA said that I could use these expenses to "offset" my taxes when I sold.

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Just what I asked above...

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3/22/2018
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,664
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi. …. My name’s Lane,

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, to clients on three continents, since 1986.

I’m reading your question now.

Bear with me a moment while I type up my response.

….

Then if you have further questions we can go from there.

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Customer reply replied 4 months ago
ok, I'm waiting, thank you.

If you live in your property year-round, then the HOA fees are not deductible. Though many costs of owning a home are deductible on your income taxes, including your mortgage interest and property taxes, the IRS does not allow you to deduct HOA fees, because they are considered an assessment by a private entity.

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If you were renting the property to others the HOA fees would be deductible.

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When you sell, you're taxed the CAPITAL GAIN ... the price you get from it MINUS your purchase price.

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You CAN go back and amend three years of tax returns to take the property tax and any mortgage interest (there's a statute of limitations on filing for a refund for more than three years back).

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But so So sorry, these costs can't be added to basis.

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Capital gain = sales price - basis

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And you CAN add selling costs, real estate commissions, etc to the basis which WILL lower your taxable gain.

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But the CPA that told you you could add the past years deduction to the basis in the year of sale is incorrect. SO Sorry.

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Customer reply replied 4 months ago
ok you understand that I never built a home, it was just land with a land loan no house on the property. I live in Maryland

( Should also point out that those expenses in that first sentence, can be deducted as yearly expenses for investment land or a second home as well)

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property tax, any interest on any loan .. for example you could go back three years and amend to get that (amending for further back that three years won't help even is a refund would be due. IRS calls this an excess collection)

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But again, you CAN add your purchase price plus any selling costs to the basis, and you WILL only be taxed at the lower long term capital gains rate ... on that profit, likely 15% depending on your total taxable income and the amount of the gain

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Customer reply replied 4 months ago
no, don't want to switch to phone, thanks...
are you telling me I cannot use any of the interest as an itemized deduction except for the last 3 years?

Sorry (disregard that) ... The site does that automatically ... Didn't come from me

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That's right ... as a cash basis/calendar year taxpayer, you should have been deducting it all along. Then it's the three year statute of limitations on filing for a refund that's keeping you from going back farther.

...

(This is also the same time frame - statute of limitations - that IRS has to ASSESS a tax)

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Please let me know if you have ANY questions at all, before rating me.

If this has helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars on your screen, and then clicking “submit")

That’s the only way JustAnswer.com will credit me for the work.

...

I hope you’ll rate me based on accuracy and thoroughness, rather than any good news / bad news content

But again, let me know if you need more here,

Lane

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Customer reply replied 4 months ago
not to be obtuse but, my CPA 10 yrs ago said that if I didn't build a house on the property within 1 year, (or something similar) in other words, if I didn't live there on this land in a house, I could not itemize the interest I was paying on the land loan. he said that at the end, (when I sell the property) I could then use the interest to "offset" and itemize. so, if that isn't so, please tell me again exactly what I can use, item by item when I file my 2017 tax return. thank you
Customer reply replied 4 months ago
then that is all I need, you have been most helpful. of course I would not rate your expertise based on good or bad news, I'm just looking for the truth. thank you.
Customer reply replied 4 months ago
do I use a special form number when I itemize or just the personal itemization form?
Customer reply replied 4 months ago
are you still with me???

Appreciate that.

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Any interest an investor pays on money borrowed to purchase vacant land is investment interest that can be deducted only as an itemized personal deduction.

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Moreover, the annual deduction for investment interest is limited to the investor’s net investment income for the year. Any excess is carried over to future years and can then be used to offset the gain on sale. THIS is probably what your CPA was telling you about.

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Had you had a second home on the property the interest would be deductible as second residence interest ... and deductible along the way, but understanding now that this is raw land, accruing the investment invest expense expense to be used against the gain when you sell is how this would work

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The PROPERTY taxes would fall into the items that would need to be handled through an amended return.

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The HOA fees are not deductible.

...

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Add then on the sales transaction itself (reported on schedule D) you'll offset the sales price by your initial investment plus any selling costs.

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You should get some help with this one. Accruing that investment interest over the years is going to be a bit of work.

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Customer reply replied 4 months ago
I have received from the bank, the interest paid each year from 2007 thru 2017 so I know how much interest I paid each year. does that follow what you are saying.

Any other carrying costs such as legal and accounting fees, insurance, and travel expense are also deductible on Schedule A. However, they are deductible only as miscellaneous itemized deductions CAN ALSO be added to basis, but not the interest.

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Yes, that's right. You'll use that to know what you would have been suspending each year that you didn't have investment INCOME.

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Customer reply replied 4 months ago
it was not investment income. it wasn't really anything but raw land and nothing done with it.

Right. Any land that's not rented or used for personal use - Qualified homes have eating, sleeping and bathroom facilities - is treated as investment land.

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Customer reply replied 4 months ago
oh, so it is considered investment land?

That's right. All real property is either personal use or investment.

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Customer reply replied 4 months ago
personal is you have a house and you live in it kind of land?

That's right. (Qualified homes have eating, sleeping and bathroom facilities). I HAVE seen individuals put an RV, anchor it, on land and then deduct as 2nd home interest.

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What you have here is suspended investment interest that will be released when the property is sold.

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Customer reply replied 4 months ago
ok, well thank you for your time

You're very welcome ... Your positive rating … (by using those the stars or faces on your screen, and then clicking “submit”) …is thanks enough!

That's the only way I'll be compensated by JustAnswer for the work here

...

Thank you,

Lane

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,664
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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