skip navigation

Search Help
Navigation Help

Tax Map Index
ABCDEFGHI
JKLMNOPQR
STUVWXYZ#

International
Tax Topic Index

Affordable Care Act
Tax Topic Index

Forms
Publications

Comments
About Tax Map

IRS.gov Website
Publication 535
taxmap/pubs/p535-015.htm#en_us_publink1000243132

Capitalization
of Interest(p14)

For Use in Tax Year 2013
rule
Under the uniform capitalization rules, you generally must capitalize interest on debt equal to your expenditures to produce real property or certain tangible personal property. The property must be produced by you for use in your trade or business or for sale to customers. You cannot capitalize interest related to property that you acquire in any other manner.
Interest you paid or incurred during the production period must be capitalized if the property produced is designated property. Designated property is any of the following.
taxmap/pubs/p535-015.htm#en_us_publink1000243133

Property you produce.(p14)

For Use in Tax Year 2013
rule
You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow it. Treat property produced for you under a contract as produced by you up to the amount you pay or incur for the property.
taxmap/pubs/p535-015.htm#en_us_publink1000243134

Carrying charges.(p14)

For Use in Tax Year 2013
rule
Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. You can choose to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. For more information, see chapter 7.
taxmap/pubs/p535-015.htm#en_us_publink1000243135

Capitalized interest.(p14)

For Use in Tax Year 2013
rule
Treat capitalized interest as a cost of the property produced. You recover your interest when you sell or use the property. If the property is inventory, recover capitalized interest through cost of goods sold. If the property is used in your trade or business, recover capitalized interest through an adjustment to basis, depreciation, amortization, or other method.
taxmap/pubs/p535-015.htm#en_us_publink1000243136

Partnerships and S corporations.(p14)

For Use in Tax Year 2013
rule
The interest capitalization rules are applied first at the partnership or S corporation level. The rules are then applied at the partners' or shareholders' level to the extent the partnership or S corporation has insufficient debt to support the production or construction costs.
If you are a partner or a shareholder, you may have to capitalize interest you incur during the tax year for the production costs of the partnership or S corporation. You may also have to capitalize interest incurred by the partnership or S corporation for your own production costs. To properly capitalize interest under these rules, you must be given the required information in an attachment to the Schedule K-1 you receive from the partnership or S corporation.
taxmap/pubs/p535-015.htm#en_us_publink1000243137

Additional information.(p14)

For Use in Tax Year 2013
rule
The procedures for applying the uniform capitalization rules are beyond the scope of this publication. For more information, see sections 1.263A-8 through 1.263A-15 of the regulations and Notice 88-99. Notice 88-99 is in Cumulative Bulletin 1988-2.