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calculation of a developer’s estimated construction costs for
common improvements under the alternative cost method.
We disagree. We believe that the above specific reference
in Rev. Proc. 92-29 to section 263A(f) makes it clear that under
the alternative cost method the interest capitalization rule of
section 263A(f) applies and prevents the allocation (to a
developer’s cost bases in lots sold in a particular year) of
estimated future-period interest expense. Under section 263A(f),
only those interest expenses that are paid or incurred during the
production period are to be capitalized in the year paid or
incurred. Section 263A(f) provides in part as follows:
SEC. 263A(f) Special Rules For Allocation of Interest
to Property Produced by the Taxpayer.--
(1) Interest capitalized only in certain
cases.-–Subsection (a) shall only apply to
interest costs which are–-
(A) paid or incurred during the production
period, * * *
The “paid” or “incurred” requirement of section 263A(f)
precludes petitioners’ claim that estimated future-period
interest expense may be estimated and allocated to the basis of
lots sold in a particular year under the alternative cost method.
Our interpretation is consistent with the general economic
performance rule of section 461(g) and (h), under which interest
expense is not added to the bases of property until the expense
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