Question

In 2014, Jed James began planting a vineyard. The cost of the land preparation, labor, rootstock, and planting were capitalized. The land preparation costs do not include any non-depreciable land costs. In 2018, when the plants became viable, Jed placed the vineyard in service. Jed wants to know whether he can claim a deduction under section 179 on his 2018 income tax return for the costs incurred in 2014 with respect to planting the vineyard. Requir: 1. You will write a letter to your client discussing the facts of the tax question, identifying the relevant tax issues and communicating your conclusion and any advice. 2. You will write a memo to the tax file discussing the facts of the tax question, identifying the relevant tax issues, including appropriate citations, and communicating your conclusion and any advice. The general outline is as follos: Paragraph 1: Identify the problem Paragraph 2: Review the sources (code sections of tax law sources) Paragraph 3: Arrive a solution

Answer 1

A real property (except land) is allowed to be taken for cost recovery.

Since land is not include to be taken for cost recovery, the cost of land cannot be included for taking the deduction.

The basis of the real property must be reduced with the already claimed deduction.

1. Since the cost of land cannot be deducted from income tax return this must be excluded from claiming as a cost.’

However the cost that has been incurred on land preparation is eligible for deduction but in this case that too cannot be claimed as a deduction because this is a zero depreciable cost that has been earlier capitalized.

2. Since in this case the land preparation cost can be claimed as a deduction, this is a conflict.

It the cost is assessed as a depreciable thing then we can seek deduction on it.