Can you write off development costs for real estate not purchased?
It would seem that the Partnership has incurred expenses in connection with the production of income. Clearly, if the partnership were to have purchased the land, these costs would have been capitalized and then amortized, in my opinion.
However, I think as the deal did not go through, these expenses could be expensed currently in the year incurred and losses of the partnership would then be limited to the extent of the basis limitations rule. Each partner would then report their respective share of the losses subject to having sufficient basis to deduct the losses.