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Homeowners Tax Breaks Yor complete Guide to finding hidden gold in your home - Lassers J.K.

Lassers J.K. Homeowners Tax Breaks Yor complete Guide to finding hidden gold in your home - Wiley Publishing, 2004. - 258 p.
ISBN 0–471–44433–2
Download (direct link): lassershomeownerstaxbreaks2004.pdf
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8.6 Figuring the Amount Deductible
Now, the illustration.
Note in the example that rental use of the residence is more than 14 days and personal use of the residence exceeds the greater of 14 days per year or 10 percent of the number of days during the year that the residence is rented. Consequently, since the rental use and personal use limits are exceeded, the deduction limitations described above become applicable.
You rent your lakeside home at a fair rental for 90 days during the taxable year at, say, $250 per day. To obtain your tenant, you pay $2,000 for advertising and a real estate agent’s fee. These costs are strictly rental expenses, having nothing to do with the cost of owning your home. You use the home for personal purposes on 20 other days during the taxable year and also rent it to a friend at a discount for 10 days at, say, $150 per day. Thus, your vacation home is used for some purpose (other than repair or maintenance) on 120 days
(Continued)
154 TAX SHELTER FROM HOMEOWNER LOOPHOLES AND VACATION HOMES
during the taxable year. Under the fair share rule (discussed later), you determine the rental ratio by dividing the number of days your home is rented at a fair rental by the number of days it is used, 90/120. Accordingly, the rental percentage is 75 percent. As will be shown, you use this percentage later when figuring the amount of home ownership expenses you can deduct.
Before you get to the limitations on the deduction of home ownership expenses, you are allowed to deduct expenses incurred strictly for rental. This is Step 1.
Step 1: Deduction of Expenses Strictly for Rental
Based on the above facts, the rental limitation is $22,000 and deductible home ownership expenses cannot exceed this amount. This prevents a tax loss from being created from vacation home ownership expenses. The expenses that are strictly rental expenses, the advertising cost and agent’s fee, are not part of home ownership expenses and are deductible without regard to the rental limitation.
Fair Share Rule. In figuring your rental deductions in steps 2, 3, and 4, you also are permitted to deduct only the portion of your home ownership expenses that relate to the rental use of the home. This is fair, because if you could deduct all your year-round expenses for the home when you rent it for only part of the year, you would be deducting as “rental expenses” costs that actually were your personal expenses. This fair share rule provides that your deductions attributable to rental use are limited by a rental
Gross receipts from rental:
90 days at $250 per day 10 days at $150 per day Total rent
Less: advertising and agent’s fee Rental limit on home ownership
$22,500
1,500
$24,000
2,000
expense deductions
$22,000
YOUR VACATION HOME IS A TAX SHELTER 155
ratio. This ratio is the number of actual rental days for the year over the total days of use for the year, and it is applied against total expenses for each category of expense to figure the amount of such expense allocable to rental use. As indicated in the example, your rental percentage is 75 percent. This percentage is used in figuring the allowable rental deductions in the following steps.
Step 2: Deduction of Interest and Taxes Allocable to Rental Use
As shown in Table 8.1, interest and taxes are fully deductible in all four scenarios. In Scenario 3, however, part of the aggregate interest and taxes is deducted in figuring your rental deductions, the balance being deducted in figuring your personal deductions. In step 2, you break out the portion of interest and taxes allocable to the rental use of your residence to get the amount of interest and taxes deductible as rental expenses. This amount is determined by using the fair share percentage of interest and taxes, 75 percent in the example. As indicated previously, the balance of your interest and taxes is deductible on Schedule A of Form 1040.
Rental income limitation (above) Mortgage interest Real estate taxes Amount allowable Remaining limit on home ownership expense deductions
Deductions Allocable
Otherwise to Rental
Allowable (75%)
$10,000 $7,500
8,000 6,000
$22,000
$13,500
$8,500
As shown, the amount of interest and taxes deductible as rental expense is $13,500 ($7,500 + $6,000). The balance of interest and taxes, $4,500 ($2,500 + $2,000) is deductible as regular itemized deductions on Form 1040. The rental limit on deductions, $22,000, is reduced by the allowable interest and taxes, $13,500, to $8,500.
Step 3: Deduction of Home Maintenance Expenses Allocable to Rental Use
In this step, you have to figure the fair share amount of home ownership expenses other than interest and taxes allocable to the rental of your vacation home that are allowable as rental deductions.
156 TAX SHELTER FROM HOMEOWNER LOOPHOLES AND VACATION HOMES
Home Allocable
Expense to Rental Deductions (75%)
Remaining limit on further
deductions (above) Insurance
Utilities and repairs Amount allowable
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