I would put them as an other expense on 8825

Hello Taxshack,

I responded to you earlier in the day but my response doesn't show so I am responding again.

I do not think that I want to open up a 8825 form to deduct the organization expenses and the mortgage costs because this never became a rental and was sold as construction in progress.

I talked to two other people about it and one told me to put it on page 1 of the 1065 as other expenses.  And the other told me to put it on the 4797 form as an ordinary loss.  What is your opinion of these two approches.

John

It can go alot of ways in this case.  I don't think sale of "construction in progress" comes up much with the IRS unless it is manufacturing.  Intent was definately rental so I can agree with taxshack that the 8825 is a great option.  You would get writeoff, although passive for the mortgage/organize expense.

However, I think you answer your own question with the statement "organization expenses and mortgage costs that I was capitalizing during the construction."  If you were capitalizing them then they are a capital asset and part of sale.  But again I don't think the IRS is clear on whether these are ordinary expenses only because we did not finish building.

Taxiowa,

From my research when a mortgage gets paid off you can deduct the unamortized costs immediately.  And also when a business ceases if you were amortizing organization expenses they can be written off in full.

The problem with putting them on a rental schedule is you have the passive loss limitations and also this never materialized into a rental.  These expenses that constitute the organization expenses and mortgage costs are all ordinary expenses that are no longer in an active business.  That is why I would favor either putting them on page1 of the 1065 or on the 4797 as an ordinary loss since they would have been written off as ordinary expenses over time if the business continued.  And the mortgage costs would have been written off after mortgage was paid off.

I guess this is a gray area not seen very often as you mentioned and every one has their take on it.

Thanks for responding

If it was a passive activity, a complete disposition frees up the losses.

SJRCPA,

What you said is true but if it never got to the point of being a rental because construction in progress was sold can I claim it as a rental expense on a rental that never was?

John

Yes everything is gone and they will be filing a final 1065 for 2024

John