MilesR wrote:ManVsTax, I think you are correct that an investor gets no deduction, although there is an unclear area with section 266 that the IRS has not clarified their position on that could "potentially" be used to capitalize the carrying costs into the basis.
I don't believe that supposed loophole exists. i.e. That you can capitalize Sec 212 expenditures that are non-deductible through
2026 2025 via Sec 266.
Treas Reg Sec 1.266-1(a)(1) flush language infers the expenses to be capitalized are deductible under Subtitle A....emphasis mine
In general. In accordance with section 266, items enumerated in paragraph (b)(1) of this section may be capitalized at the election of the taxpayer. Thus, taxes and carrying charges with respect to property of the type described in this section are chargeable to capital account at the election of the taxpayer, notwithstanding that they are otherwise expressly deductible under provisions of Subtitle A of the Code. No deduction is allowable for any items so treated. Then we have Treas Reg Sec 1.266-1(b)(1)(iv) which is more explicit regarding carrying charges other than interest and taxes and applicable to the instant case as the artwork isn't real property:
...The items thus chargeable to capital account are...
Any other taxes and carrying charges with respect to property, otherwise deductible, which in the opinion of the Commissioner are, under sound accounting principles, chargeable to capital account.