Capitalize, Amortize or Deduct Adjusting for a New Recipe (263(a))

In an imaginary, taxpayer-friendly world, everything that is bought, acquired or paid for could be deducted at the taxpayer’s discretion, when taxpayer wanted – on purchase, incrementally, slow or fast. In that imaginary world, the tax adviser would have to simply ask “How much would you like to write off today on that purchase?”

The  imaginary “taxpayer-friendly world” is not real; however, sometimes the current tax rules are not so far off from the imaginary world.

This outline highlights a number of the significant rules in connection with whether real estate related expenditures should be capitalized, amortized or deducted.  What is interesting here is not the basic rules, but the creative areas where clients may accelerate or limit their deductions.  Following a discussion of some practical steps for practitioners, this outline presents topics in the following order:

  1. Purchases of real estate;
  2. Construction of real estate;
  3. Operation of real estate;
  4. Lease of real estate; and
  5. Sale of real estate.

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