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April 12, 2019 at 9:17 am #3202fairiraParticipant
Since April 15 is at hand, your quick help will be most appreciated re whether or not property tax on vacant land held as an investment is subject to the $10,000. SALT limit which of course does apply to the owner’s home property tax.
A Nolo.com article says: “An investor can also deduct property taxes paid on a vacant land as a personal itemized deduction on Schedule A. This deduction is not limited to the amount of net investment income. Nor is it subject to the $10,000 annual limit on deducting property tax paid on a main or second home. The $10,000 limit, enacted for 2018 through 2025 by the Tax Cuts and Jobs Act (TCJA) does not apply to investment property.”
A Forbes article says: “The applicable section is 11042 of the new tax law. The bit that most people care about is here: ‘the aggregate amount of taxes taken into account under paragraphs (1), (2), and (3) of subsection (a) and paragraph (5) of this subsection for any taxable year shall not exceed $10,000.’
“In other words, section 164 of the Tax Code is amended to cap the aggregate of certain state and local taxes, including real estate taxes. But the statute doesn’t stop there. It goes on to say: ‘The preceding sentence shall not apply to any foreign taxes described in subsection (a)(3) or to any taxes described in paragraph (1) and (2) of subsection (a) which are paid or accrued in carrying on a trade or business or an activity described in section 212.’
“Section 212 says: ‘In the case of an individual, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year: (1) for the production or collection of income; (2) for the management, conservation, or maintenance of property held for the production of income; or (3) in connection with the determination, collection, or refund of any tax.'”
Q. 1: Does property tax on vacant land held for hoped-for future capital gain qualify as an expense paid under Section 212 (1) and/or (2) and so is not subject to the SALT limit?
Q. 2: If so, can this property tax of $12,000. be taken on Schedule A in line 6 “Other taxes”?
Q. 3: Or, could this property tax of $12,000. be taken instead on Schedule E where the land owner now reports a net rental home income of $1,500.?
Q. 4: If taken on Schedule E, would passive activity rules limit the 2017 allowed amount of land property tax to $1,500.?
Thank you very much for your help.
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