Alan L.
Elite Member
The key word is "dealer", not "developer". If you are a dealer then your profit is taxed at ordinary rates. If you a developing lots then in all probability you are a dealer. Most expenses related to the property will have to be added to the cost of the development, recoverable only against the sale of lots. Even interest has to be capitalized (added to the cost) during the producton period.
If you are just holding land for investment, maintenance expenses, such as depreciation on a tractor, fuel costs, etc. are deductible, sort of, but only as miscellaneous itemized deductions. First you have to reduce these deductions by 2% of your adjusted gross income, which may or may not leave much to deduct. Secondly, these miscellaneous deductions aren't deductible at all for alternative minimum tax purposes.
If you have a problem with losing deductions either because of the 2% floor or the AMT, there is an election you can make to capitalize taxes and/or carrying costs on unimproved and unproductive property. This means you capitalize all of the expenses, thus increasing your basis and reducing the capital gain when the property is sold.
Beats losing the deductions altogether.
This applies to investment property - not your personal residence. There is no deduction at all for your tractor to maintain your "yard".
If you are just holding land for investment, maintenance expenses, such as depreciation on a tractor, fuel costs, etc. are deductible, sort of, but only as miscellaneous itemized deductions. First you have to reduce these deductions by 2% of your adjusted gross income, which may or may not leave much to deduct. Secondly, these miscellaneous deductions aren't deductible at all for alternative minimum tax purposes.
If you have a problem with losing deductions either because of the 2% floor or the AMT, there is an election you can make to capitalize taxes and/or carrying costs on unimproved and unproductive property. This means you capitalize all of the expenses, thus increasing your basis and reducing the capital gain when the property is sold.
Beats losing the deductions altogether.
This applies to investment property - not your personal residence. There is no deduction at all for your tractor to maintain your "yard".