Let’s say that you own a vacant lot or some unproductive land. You plan to keep the lot or land for a number of years and then sell it at a healthy profit.
Meanwhile, you incur costs to mow the grass and insure the property. You also pay taxes on the land and interest on a mortgage.
If you want the best after-tax profits and hope to deduct the carrying costs currently, you need answers to the three questions below:
Do you itemize deductions or not?
To what extent does the 2 percent of adjusted gross income floor on miscellaneous itemized deductions trash your deductions?
Will the alternative minimum tax (AMT) delete some deductions?
Now that you have answered the questions, you need a strategy for each of the costs, and this strategy can change from year to year. In some cases, the strategy involves making a formal election in your tax return to capitalize some or all of the carrying costs.
So the question is: what costs do you have, what tax problems do they face, and what should you do to get the best tax benefits? ... Log in to view full article.