IRS tax question

[Rhotchkiss]

That may be the case under the Trump tax law -- I am not too familiar with it and I no longer actively practice tax law. BUT, there is a fundamental difference between deductions and capitalizing costs. And I am not talking about deductions. You cited info about deductions.

Deductions are immediate reductions to income (in the tax year incurred) for allowable expenses, most often ordinary and necessary business expenses. A capital expense is one that you add to the cost of the asset, which in turn increases your basis and impacts gain or loss on sale. Again, I do not know the current tax law, but I would be very surprised if you could not add to your purchase price the cost of taxes and shipping etc, as well as costs associated with a sale. These are not deductions.

For example, if you bought a vacant piece of land in 2000 for $100,000 and are now selling it for $250,000, you would have $150k gain. But, lets say you use a broker, who earns 6%, to sell the land, and you also pay transfer taxes of 1%, for a total of $17,500. Under Federal tax law, you are entitled to reduce your gain by that $17.5k. Thus, the taxable amount would be $250k - $100k initial cost - $17.5k selling costs = $132.5k gain recognized upon which a tax applies. AND this makes sense. You did not get the economic benefit of the $17.5, someone else did (the broker and the state/county) so you should not pay taxes on items you did not recognize the economic benefit on. Plus, the broker will pay taxes on their 6%, which would result in the same dollars being double taxed - once to you even though you did not receive the economic benefit, and once to the broker who did get the benefit and is the proper party to bear the tax.

Again, I do not know the Trump tax laws well at all. And, the government has times before passed tax laws that dont make a lot of sense. But basic principals of Federal taxation dictate that (i) you should not pay taxes on money you do not get the economic benefit from, and (ii) costs incurred in connection with the purchase, maintenance, and disposition of a capital asset should be added to the cost basis of that asset.