Were you hoping to stop capitalizing interest on construction projects? If so, you’re in luck. In June, the Governmental Accounting Standards Board (gasb) issued statement No. 89, Accounting for Interest Cost Incurred before the End of a Construction Period. Under current governmental accounting standards, GASB universities, colleges, hospitals, and governments with a business-type activity.
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The interest on the construction loan during construction is paid out of an interest reserve, which is a special savings account funded out of the proceeds of the construction loan. Think of your interest reserve as one of the line items in your construction cost budget, like the Finish Electrical Cost or the Sewer Hook-up Fee.
Capitalization period is the time period during which interest expense incurred on a qualifying asset is eligible for capitalization. Interest is eligible for capitalization when (a) the expenditures have been made, (b) activities related to construction of asset are ongoing, AND (c) interest cost is being incurred.
But you may not deduct the interest you pay during the construction period. Instead, this cost must be added to the basis of your property and depreciated over 27.5 years the depreciation period for residential rental property). (I.R.C. ?263A(f)(1).) The construction period for real property begins when physical construction starts. physical construction includes: clearing, grading, or excavating land; demolishing or gutting an existing building
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Interest expense should be included in the cost of acquiring an asset during the period when an entity is carrying out those activities needed to bring the asset to its designated condition and location. The amount of interest capitalized should be the amount incurred during the period when expenditures are incurred for the asset.
The Board began its deliberations on the Capitalization of Interest Cost project by discussing whether construction-period interest should be (a) capitalized, (b) reported as a deferred outflow of resources, or (c) reported as an outflow of resources.
Capitalized interest is the cost of borrowing to acquire or construct a long-term asset. Unlike an interest expense incurred for any other purpose, capitalized interest must not be expensed on the.
Construction period interest and taxes: Amortizable or part of the cost of the building. commercial rental property. – Answered by a verified Tax Professional