Printer Friendly

IRS rule to further burden residential developers.

IRS rule to further burden residential developers

A provision in the interest capitalization rules recently proposed by the Internal Revenue Service may impose new financial hardships on already hard pressed residential real estate developers, according to James E. Connor, a partner in the National Tax office of Coopers & Lybrand, the international tax, accounting and consulting firm.

The proposed rules, if finalized in current form, could require developers to capitalize the interest expense of property to be developed even before they begin construction of residential units.

As soon as a developer starts work on perimeter roads or other common features that benefit all units within a residential community, that date would be considered the beginning of the production period for the entire development, even if no work had begun on the homes. The developer would then be required to start capitalizing interest on undeveloped land in the project, according to Connor. Developers now deduct these costs currently, as part of the pre-production phase of development.

"Developers might no real not realize that, under these proposed rules, they could be required to capitalize land very early in the development process. The reason is that certain amenities of a housing development, such as roads, are often begun before the houses themselves," explains Connor.

"This financial burden is being imposed at a time when developers are already suffering from earlier tax law changes and the current depressed real estate market," he adds.

Connor says the IRS plans to hold hearings on these rules on Nov. 20. He suggests that developers who are concerned about this issue make their opinions known to the IRS, either in writing or through oral commentary at the hearings, which present an important opportunity to comment before finalization of the rules.
COPYRIGHT 1991 Hagedorn Publication
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:could require developers to capitalize interest expense of property to be developed before construction begins
Publication:Real Estate Weekly
Article Type:Brief Article
Date:Nov 13, 1991
Previous Article:Money manager leases at Carnegie Hall Twr.
Next Article:KFC National Management moves to 10 Bank St. in Wt. Plains.

Related Articles
Proposed construction period interest rules are tough on developers.
Comments on proposed interest capitalization regulations: December 12, 1991.
Special accounting method for common area costs of real estate developers.
Tax Court broadly applies UNICAP rules to real estate developer.
Developer required to capitalize real estate taxes.
IRS changes impact fees rule for developers.
Impact-fees ruling has favorable impact.
Impact fees.
Expanding joint venture development business.
Savvy developers' best-kept secret: cost segregation.

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters