You make the call

Question: Ethan purchased one acre of undeveloped land near a shopping plaza about five years ago, with hopes of selling it for a profit in the future. He has paid $15,000 in property taxes on the parcel each year. Ethan currently has an NOL carryover; therefore, the property taxes he paid this year give him no tax savings. Ethan would like to see if there is anything he can do to capitalize the property taxes paid this year. Is that possible?

Answer: Yes, pursuant to §266, Ethan can elect to capitalize the property taxes paid this year on one acre of land. By making this election, the taxes paid will increase his basis in the land. When Ethan sells the land, the taxable gain on the sale will be smaller due to his increased basis that resulted from the capitalized taxes.

To make this election, Ethan will attach a statement to his Form 1040, U.S. Individual Income Tax Return. The attachment needs to mention §266 describing the cost of the property taxes Ethan paid.