The new tax law limits property tax deductions to $10,000 and eliminates miscellaneous itemized deductions. So you may be fussing about the loss of your tax deductions, but there is an election you may be able to make to capitalize these expenses which would be beneficial to you. 

A recent tax court case highlights the strategies the IRS will take to limit your tax deductions. And the amount that is not deductible is lost forever unless you make a “carrying charges” election. 

The taxpayer paid property taxes for land and reported property tax deductions on Schedule C and E (not Schedule A). The property was not rented to third parties, so the IRS argued, and the court agreed, the property taxes are reportable on Schedule A. So why does the schedule matter? 

Taxes reported on Schedule A are subject to the $10,000 limitation; however, amounts reported on Schedules C and E are not. The taxpayer was deducting 100% of taxes but lost the tax deductions when the IRS moved them to Schedule A. What can you do to retain the deduction? 

You can make an election to add the taxes to the property’s cost basis. You will not get a current year tax deduction, but the election will increase the property’s cost basis which will reduce your taxable gain when you sell the property. So by making the election, you have retained your tax deduction which would have been lost forever without the election. 

Our company has experience with this election, and we are available to assist you. Please call us at 323-285-9880 for additional information.