I just purchased a vacant piece of land, do I expense or capitalize real estate taxes and how?

Shawn_24

I just purchased a vacant piece of land. As far as my annual real estate taxes, I understand I can either capitalize or expense. If I capitalize, how do I inform the IRA and on what form? If I decide to expense, what schedule do I use? I'm using it as an investment that I plan to sell at a later date.

Henry

Hi Shawn_24, you can generally deduct property taxes paid as a personal itemized deduction on Schedule A. This is done by going to Deductions/Credits > Homeowner Expenses (1098) and indicating you paid real estate taxes.

On the other hand, if you don't plan to deduct the property tax incurred from owning unimproved and unproductive real property, you may be able to elect to add this expense to your land's cost basis under section 266 and sections 1.266-1(b)(1) and (c)(3) of the Income Tax Regulations. This would reduce any taxable gain when you sell the property.

If you meet the criteria, you typically make the election by filing a statement with the original return for each year the election is made. The statement should indicate the item or items which you elect to treat as chargeable to the capital account.