INTEREST DEDUCTION

[TAXMAN]

I think I am having a brain seisure. TP sch c borrows money to start busines and buy equipment in 2012. Pays interest in 2012 and 2013. Opens for business Jan 2013. I know what to do with interest in 2013 but what do I do with the interest in 2012 about 10k worth. BTW tp has not filed 2012. All the equipment bought in 2012 is being held and dep in 2013. No sec 179 need for any of this stuff. Just not sure what to do with interest in 2012.

[Lee B]

I would suggest two possibilities:

1. Capitalize the 2012 interest and add it to the depreciable basis of the equipment or

2. Consider the interest to be a start up expense and deduct or amortize accordingly.

It will be interesting to see what others think.

[TAXMAN]

I think if I use it as start up does it even show up in 2012?

[mcb39]

I think that I would use it as start up expense and amortize in 2013. Anyone?

[jklcpa]

I think you could choose either start-up or capitalize as part of the equipment. As long as a business isn't subject to the uniform capitalization rules, it would have the choice to capitalize interest or expense it. Alternately, start-up expenses can include expenses that would otherwise be deductible in a business that had already commenced operations. With all of that in mind, I think you can make a case for whichever one you choose to add the interest expense into and that will be best for the client.