Common use of Deferred capitalization Clause in Contracts

Deferred capitalization. If the tax- payer does not elect under paragraph (g)(2)(iv) of this section to capitalize substitute costs, deferred interest to which the deferral amount is attrib- utable (determined under any reason- able method) is capitalized in the year or years in which the deferred interest would have been deductible but for the application of section 263A(f) (the cap- italization year). For this purpose, any interest that is deferred from a prior computation period is taken into ac- count in subsequent capitalization years in the same order in which the interest was deferred. If a unit of des- ignated property to which previously deferred interest relates is sold before the capitalization year, the deferred in- terest applicable to that unit of prop- erty is taken into account in the cap- italization year and treated as if recov- ered from the sale of the property. If the taxpayer continues to hold, throughout the capitalization year, a unit of depreciable property to which previously deferred interest relates, the adjusted basis and applicable re- covery percentages for the unit of prop- erty are redetermined for the capital- ization year and subsequent years so that the increase in basis is accounted for over the remaining recovery periods beginning with the capitalization year. See Example 2 of paragraph (g)(2)(v) of this section.