May I capitalize my real estate taxes?

No.

However, if the property is undeveloped land, you can elect to capitalize the taxes, interest and other carrying charges under IRC Sec. 266.

Katie in San Diego

Yes, but only for AMT purposes. This means that you will have a different basis for AMT than for the regular tax. When you sell the property, you need to remember this fact.

Another thing to consider is if your Schedule A deduction was effectively limited by AMT, you might be able to, in the following tax year, exclude some of your state tax refund as income.

(This issue has been discussed here in the past, and there were multiple opinions.)

Steve

taxes, interest and other carrying charges under IRC

Where does it say that IRC 266 applies only to undeveloped land?

"...only for AMT...." Where did that answer come from? I would

*love* to know how to do this!!! Tell me how!!

IRC 56(b)(1)(ii). As real property taxes are not deductible under AMT, the pro-rated share of real property taxes charged at acquisition or sale (i.e. in escrow) are addtional costs chargable to the capital account per IRC

263(a)(1) and/or 263A(a)(2)(B). It's treated just like any other fee or cost in the transaction that's not currently deductible in computing basis or disposition on sale.

taxes, interest and other carrying charges under IRC

Treasury Regulation 1.266-1(b)(1)

If you own a house but don't rent it, live in it -- that is, it is purely for investment -- then does it satisfy 1.266-1(b)(i)?

Though from reading 1.266, it looks like 1.266-1(b)(2) allows you carry capital costs for real property. Maybe I read it wrong, but here goes:

(b) Taxes and carrying charges. (1) The taxpayer may elect, as provided in paragraph (c) of this section, to treat the items enumerated in this subparagraph which are otherwise expressly deductible under the provisions of Subtitle A of the Code as chargeable to capital account either as a component of original cost or other basis, for the purposes of section 1012, or as an adjustment to basis, for the purposes of section 1016(a)(1). The items thus chargeable to capital account are: (i) In the case of unimproved and unproductive real property: Annual taxes, interest on a mortgage, and other carrying charges. (ii) In the case of real property, whether improved or unimproved and whether productive or unproductive: (a) Interest on a loan (but not theoretical interest of a taxpayer using his own funds), (b) Taxes of the owner of such real property measured by compensation paid to his employees, (c) Taxes of such owner imposed on the purchase of materials, or on the storage, use, or other consumption of materials, and (d) Other necessary expenditures, paid or incurred for the development of the real property or for the construction of an improvement or additional improvement to such real property, up to the time the development or construction work has been completed. The development or construction work with respect to which such items are incurred may relate to unimproved and unproductive real estate whether the construction work will make the property productive of income subject to tax (as in the case of a factory) or not (as in the case of a personal residence), or may relate to property already improved or productive (as in the case of a plant addition or improvement, such as the construction of another floor on a factory or the installation of insulation therein).

No. I see nothing nothing in (b)(1)(ii) that mentions "real property taxes" of a vacant home held for investment.