Adjustments to basis on land?

I finally sold some undeveloped land after 7 years.

There is a covenant that all the properly owners would split the cost of road maintenance. That cost me $1,000. Does that affect my basis?

If so, how about in the 10 years before I put the property on the market?

I am sure I know the answer to this one, but how about property taxes on it? Any argument that property taxes paid while it was on the market affect it's basis?

I sold it for a small profit, but after you consider 7 years of property taxes, I lost money on it. Oh well.

Thanks.

Reply to
Frustrated
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It depends on exactly what kind of work was done. It it's something that gets done every year or less, it's probably considered a repair and does not affect your basis.

I don't see how property taxes could ever affect basis. You should have gotten any "benefit" from paying those taxes by deducting them from your income tax.

Stu

Reply to
Stuart Bronstein

IRC 266 provides an election to capitalize property taxes and other "carrying charges" on undeveloped land. But I believe this election needs to be made on an annual basis...or at least IN ADVANCE...and not after the fact when you eventually sell the property.

Obviously, if you've already deducted the property taxes, as you would be fully entitled to do, then it would appear that you've informally "elected" NOT to make this election.

Also, I take no position on whether the road maintenance cost would qualify as a "carrying charge" for the purposes of IRC 266. Additional research required. :-)

Reply to
MTW

Whether maintenance costs would be eligible for addition to basis would be whether they are otherwise deductible under Subtitle A.

You likely could have capitalized road maintenance, but it?s too late. Under Sec. 266, capitalized costs include carrying costs otherwise deductible under Subtitle A. Maintenance costs on investment property would be included in such costs as an investment expense. As an example, maintenance costs would be deductible on rental property, and the same rule would apply to other investment property. They may be temporarily lost due to passive loss rules, but would have eventually come into play when the property was disposed of.

To capitalize carrying costs, you must make an election each year to do so. If not on your original return it must be on an amended return filed within six months of the due date of the return including extensions.

To make the election to capitalize a carrying charge, you would have needed to write a statement saying which charges you elected to capitalize and attach it to your original tax return for the year the election was to be effective. If not on the original return, it could have been on an amended return filed no less than six months before the extended due date of the original return (and marked ?Filed pursuant to § 301.9100-2? on the statement). If it is six months past the extended due date of the original return, it?s too late to make the election.

Reply to
adjunct

The original question was about investment property. What about my primary residence? I just had the driveway resurfaced, after 10 years in the house. Do I add that to my basis?

What about sealcoating, which happens less often than every year? I've always thought of that as pure maintenance, but maybe I'm wrong.

Reply to
Stan Brown

You couldn't capitalize the driveway maintenance because maintenance costs on a personal residence are not "otherwise expressly deductible under the provisions of Subtitle A."

Reply to
adjunct

Are you saying that you can't capitalize any improvements on a residence? That's ridiculous. Of course you can.

Stu

Reply to
Stuart O. Bronstein

The sealcoating does indeed sound like "maintenance" that would not be deductible or capitalizable on a personal residence.

The driveway resurfacing might be capitalizable, but if so you must first REDUCE your basis by the cost associated with the surface you are replacing (or that has worn out). Since that will likely result in no significant overall net change in basis, the cost of "replacements" is generally ignored in the context of a non-depreciable asset like a personal residence.

No cites...this is simply my opinion.

Reply to
MTW

I'm not saying any such thing, I'm answering the question asked, which was can a maintenance cost be capitalized on a personal residence. You can argue about whether a 10 year driveway resurfacing is maintenance or a capital improvement but the poster described it as maintenance and the question was answered that way.

Reply to
adjunct

Periodic seal coating of a driveway is considered maintenance and is not an improvement. However, if you replace the driveway and as a part of the replacement process, you seal coat the driveway then the seal coat would appear to be apart of the capital improvement of the driveway.

Reply to
Arnie Goetchius

OP, not a tax professional, used the broad term "maintenance" without any indication of what kind of work is actually being done each year. You can't take that one word and jump to the conclusion that all work doen was "maintenance" as defined in the tax code, ignoring the possibility that capital improvements may be included.

Stu

Reply to
Stuart O. Bronstein

I think the question is, where do we draw the line between maintenance and capital improvements? I know enough to know that my own idea of what is "maintenance" may not match what the tax code considers to be maintenance. (I'm not sure "capital improvements" is an appropriate term in the context of income tax. So perhaps I should state my question as, where do we draw the line, for my own residence, between things that alter my basis and things that do not? But perhaps that is too large a question for this newsgroup.)

And to "adjunct", I don't think I described driveway resurfacing as maintenance. I believe that I said I thought of _sealcoating_ as maintenance, but a PP had implied that for tax purposes it might affect the basis, because it was done less often than once a year.

Reply to
Stan Brown

Basically when road started to become undrivable, it was regraded and the ditches were cleaned out. Maybe every 4. Last time was $9,000, split 9 ways. Is that maintenance or an improvement?

Reply to
Frustrated

Basically when road started to become undrivable, it was regraded and the ditches were cleaned out. Maybe every 4. Last time was $9,000, split 9 ways. Is that maintenance or an improvement? =======================================I'm not a tax guy. FWIW, A comparison ... I live on a private road (+/- 1/2 mi.) with four other residences. Care and feeding is shared (at least it's supposed to be but people can complicate things sometimes). The road was initially a dirt/gravel road - occasional york-racking and refreshing the gravel was "maintenance" to me. We eventually agreed to have it done in rolled millings - that would be an "improvement" to me. Subsequent milling patches would be "maintenance" to me.

If you merely returned the road to usability I'd think that was "maintenance" (but I'm not a tax guy). If you lengthened the road or widened it or put in some sort of plumbing or "paved" it in some manner then that's "improvement" to me (I'm not a tax guy). Whether some sort of "netting" would be applicable is too granular for me (I'm not a tax guy). G.Salisbury Long Valley, NJ

Reply to
GSalisbury

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