Question

A corporate taxpayer plans to build a $6 million office building during the next 18 months. How must the corporation treat the interest on debt paid or incurred during the production period?

A. The interest must be included in income for the year and taxed as capital gain income.
B. The interest must be capitalized.
C. The interest must be expensed.
D. The interest must be included in income for the year and taxed as ordinary income.

Answer 1

The interest on debt paid or incurred during the production period must be capitalized.

Step-by-step explanation:

The interest on debt paid or incurred during the production period must be capitalized.

When a corporation builds an office building, the interest on the debt used to finance the construction is considered part of the cost of the building. Therefore, the corporation must capitalize the interest and include it as part of the overall cost of the building. The interest is not expensed or included in income for the year.