INVESTMENT INT FORM 4952

[TAXMAN]

TP bought land years ago. Financed it and has been carrying the interest on form 4952. now about 9k. TP sold the land at a loss. Since it was a loss none of the interest can be used if I read 4952 right. So, can I add the unused interest to the basis and wipe out the investment interest on the 4952 there by increasing the loss and the carryover. At this point TP has no other investments.

[Lee B]

My understanding is that this election is done on an annual basis. Ideally the election to do so would have been done the very

first year it was realized that the investment interest was not a viable deduction.

[Lee B]

Perhaps you should see if you can elect out of capital gains treatment, which would than allow the investment interest to be

deductible. You would have to calculate the tax both ways to see which way produced the lowest tax.

I don't have time to research this approach.

[TAXMAN]

The way I read the rules I can either add to basis or deduct in year of sale. Since this sale produced a capital LOSS and tp has a schedule a this year it might make more since to take it this year as taxpayer has no other investments. Would create a carry over to future years. How do you think?

[Lion EA]

Are you asking about the interest in the year of sale?  Or about all the interest through all the years that he already elected or didn't elect?  Not sure you can change the past.  But you can make an election for the current year.

[TAXMAN]

From what I can tell looking back at prior returns the interest was reported on Form 4952. Has created a large number since 2012. Now that the underlying property has been sold at a LOSS can the interest now be used on Sch-A, including the carryover. This was unimproved land. I did not find in the old returns that an election was ever made

[jklcpa]

I think you are out of luck for the interest on the 4952 that for years 2012 through 2015.  It will carryforward until the TP has investment income, or has a cap gain or cap gain div that he can elect to treat as investment income, but then he'd lose out on the cap gain rate on that portion he elects to treat as inv. income for this purpose.

The election to capitalize and include in basis is made when filing an original return so you can't do that for the previous years, but you can make the election for 2016. Here's the reg for the election with its wording, and where it says it must be filed with the original return for the year:

https://www.law.cornell.edu/cfr/text/26/1.266-1

 

[TAXMAN]

Thank you. I pretty much figured out that TP had to carry this on. I was hoping since the underlying investment was gone the interest would be also. That's tax law for us.

[Lion EA]

Yeah, it ain't logical; it's the law.