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1987); sec. 1.263A-1T(b)(2)(iii)(I), Temporary Income Tax Regs.,
52 Fed. Reg. 29378 (Aug. 7, 1987). The production of real
property includes the rehabilitation or improvement of an
existing building. Sec. 263A(g)(1); sec. 1.263A-1T(a)(5)(ii),
Temporary Income Tax Regs., 52 Fed. Reg. 10061 (Mar. 30, 1987);
S. Rept. 99-313, supra at 143, 1986-3 C.B. (Vol. 3) at 143;
Notice 88-99, 1988-2 C.B. 422.
(1) Interest Expense
Interest paid or incurred during the production period of
real property must be capitalized under the special rules of
section 263A(f). Sec. 263A(f)(1)(A) and (B)(i), (4)(A)(i). The
interest to be capitalized includes (1) interest on any
indebtedness directly attributable to production expenditures
with respect to the real property, and (2) interest on any other
indebtedness to the extent that the taxpayer’s interest costs
could have been reduced if production expenditures had not been
incurred. Sec. 263A(f)(2); sec. 1.263A-1T(b)(2)(iv)(A) and (B),
Temporary Income Tax Regs., 52 Fed. Reg. 10063 (Mar. 30, 1987).
The production period covers the period (1) beginning on the date
on which production of the real property begins and (2) ending on
the date on which the real property is ready to be placed in
service. Sec. 263A(f)(4)(B); sec. 1.263A-1T(b)(2)(iv)(A),
Temporary Income Tax Regs.
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