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that he acquired and held the property for investment purposes,
there has been no physical change to the property, and it was not
reasonably likely that he would subsequently develop the property
once he acquired it.
Section 263A provides:
(a) Nondeductibility of Certain Direct and
Indirect Costs.--
(1) In general.–-In the case of any
property to which this section applies, any
costs described in paragraph (2)--
(A) in the case of property
which is inventory in the hands of
the taxpayer, shall be included in
inventory costs, and
(B) in the case of any other
property, shall be capitalized.
(2) Allocable costs.–-The costs
described in this paragraph with respect to
any property are–
(A) the direct costs of such
property, and
(B) such property’s proper
share of those indirect costs
(including taxes) part or all of
which are allocable to such
property.
Real estate taxes qualify as an “indirect cost” that must be
capitalized under section 263A if this section applies. Sec.
1.263A-1(e)(3)(ii)(L), Income Tax Regs. Section 263A applies to
property “produced” by the taxpayer. Sec. 263A(b)(1). Section
263A(g)(1) defines the term “produce” to include “construct,
build, install, manufacture, develop, or improve.” Congress
intended the term “produce” to be broadly construed. See Reichel
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