Chapter 11 Introduction

By Jason Watson, CPA
Posted Sunday, May 25, 2025

Chapter 11 addresses how to handle the financial and tax implications of rental property operations beyond the acquisition phase. The chapter focuses on issues such as interest capitalization during construction, the use of carrying costs, asset dispositions, and ownership changes. These topics are often overlooked but become important as your real estate activities grow in scale or complexity, or hopefully both!

The chapter begins with interest capitalization—when and how to treat mortgage interest as part of the building’s cost rather than an immediate deduction. It then moves to related items such as utilities and property taxes during development, and how to determine whether these should be expensed or capitalized. There is also a review vacant versus idle property, and how they are the same and different.

Additional topics include how to handle a partner buyout, transfer ownership interests, and take a rental property out of service. These scenarios are framed around IRS guidance and common accounting practices for property owners and managers.