California Code of Regulations › Title 18 - Public Revenues › Division 3 - Franchise Tax Board › Chapter 3.5 - Bank and Corporation Tax › Subchapter 7 - Net Income › Article 3 - Items Not Deductible › Section 24426(a) - Taxes and Carrying Charges Chargeable to Capital Account and Treated as Capital Items

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(1) In
					 General. In accordance with Section
					 24426, items enumerated in
					 subsection (2)(A) of this regulation may be capitalized at the election of the
					 taxpayer. Thus, taxes and carrying charges with respect to property of the type
					 described in this regulation are chargeable to capital account at the election
					 of the taxpayer, notwithstanding that they are otherwise expressly deductible
					 under provisions of Article 1 of Chapter 7. No deduction is allowable for any
					 items so treated.
(2) Taxes and
					 Carrying Charges.
(A) The taxpayer may elect,
					 as provided in subsection (3) of this regulation, to treat the items enumerated
					 in this paragraph which are otherwise expressly deductible under the provisions
					 of Article 1 of Chapter 7 as chargeable to capital accounts as a component of
					 original cost or other basis, for the purposes of Section
					 24912, or as an adjustment to
					 basis, for the purposes of Section
					 24916. The items thus chargeable
					 to capital account are--
(i) In the case of
					 unimproved and unproductive real property: Annual taxes, interest on a
					 mortgage, and other carrying charges.
(ii) In the case of real property, whether
					 improved or unimproved and whether productive or unproductive:
(I) Interest on a loan (but not theoretical
					 interest of a taxpayer using its own funds),
(II) Taxes of the owner of such real property
					 measured by compensation paid to its employees.
(III) Taxes of such owner imposed on the
					 purchase of materials, or on the storage, use, or other consumption of
					 materials, and
(IV) Other necessary
					 expenditures paid or incurred for the development of the real property or for
					 the construction of an improvement or additional improvement to such real
					 property, up to the time the development or to such real property, up to the
					 time the development or construction work has been completed. The development
					 or construction work with respect to which such items are incurred may relate
					 to unimproved and unproductive real estate whether the construction work will
					 make the property productive of income subject to tax (as in the case of a
					 factory) or not (as in the case of a personal residence), or may relate to
					 property already improved or productive (as in the case of a plant addition or
					 improvement, such as the construction of another floor on a factory or the
					 installation of insulation therein).
(iii) In the case of personal property:
(I) Taxes of an employer measured by
					 compensation for services rendered in transporting machinery or other fixed
					 assets to the plant or installing them therein.
(II) Interest on a loan to purchase such
					 property or to pay for transporting or installing the same and
(III) Taxes of the owner thereof imposed on
					 the purchase of such property or on the storage, use, or other purchase of such
					 property in the state which is purchased for storage, use or other consumption
					 in that state paid or incurred up to the date of installation or the date when
					 such property is first put into use by the taxpayer, whichever date is
					 later.
(iv) Any other
					 taxes and carrying charges with respect to property, otherwise deductible,
					 which in the opinion of the Franchise Tax Board are, under sound accounting
					 principles, chargeable to capital account.