new client purchased a house as an investment with the intention of renovating it and selling it at a profit. House purchased on 5-14-18 and listed for sale on 12-4-20. Sold 5-3-21. The client is including the real estate taxes incurred from the point of purchase up until the sale date in the cost basis as a capitalized cost under Sec 266. I believe the taxpayer had the right to capitalize the cost up until the renovations were completed since this was an investment property and real estate taxes are a deductible necessary expense. However no election to capitalize the cost under Sec 266 was attached to their 2018-2020 return. Can the election be made on an amended return for 2019 and 2020? They also included utility expenses in the capitalized cost as a necessary carrying cost.However only deductible expenses are eligible to be capitalized under 266. Investment expenses under TCJA are no longer deductible so I do not think such cost could be capitalized.
Appreciate any comments on the above.