Taxes and Rental Property

If you got to the beach this summer, you probably noticed those huge vacation homes lining the shore line. Owners rent them out for the season, or by the week or month. Some property owners rent houses or apartments year-round. Others rent out an extra bedroom or their basement for extra money.


Renting out a residence, such as a summer vacation home, when you are not using it, or a portion of your home, you may be eligible to deduct expenses against the rental income. You might even be able to deduct expenses in excess of the rental income and claim a loss that can offset other income. Sounds great; as long as you qualify based on the tax rules and limits.


Four rental property tax rules and limits that you need to know:


  1. Rental Days Personal Days

You cannot claim a tax loss on a rental property for the year if you use it personally for 14 days, or 10 percent of days the home is rented out, whichever is greater. In that case, you can only deduct rental expenses up to the amount of rental income. Exception — a day spent making repairs or improvements do not count as a personal day if you have the records to back it up.


  1. Deductible Expenses

In general, income from a rental property is taxable. Deductions from that income can be taken for expenses related to the rental, such as mortgage interest, property taxes, insurance, repairs, and utilities. If you are renting out your basement or some other portion of your home, expenses related to the rental portion can be allocated to offset rental income. Direct rental expenses, such as painting or repairing the rented portion, can be 100% deducted.


  1. At-Risk and Passive Activity Limits

The deductible portion of losses from rental real estate activity may be limited under two sets of rules: at-risk rules and passive activity limits. These rules apply if you are not at risk of loss for a property placed in service after 1986 that is operated as a passive activity. In most cases, real estate rental activities are considered to be passive. There are exceptions, but these rules can limit deductible losses.


  1. Depreciation

The cost of income-producing property can be deducted yearly by depreciating the property. The amount of depreciation deduction is determined by basis in the property used as a rental, the recovery period established by IRS rules, and the depreciation method used. Depreciation reduces the property’s basis for figuring gain or loss upon sale or exchange.


So if you plan to rent out your vacation property or your basement, you need to know the rules and limitations. Get more details about the tax rules and limits for your rental property from the IRS at

The Facts about Home Office Deductions

New tax clients ask me all the time about taking a home office deduction. It’s is a popular idea, but it doesn’t work for everyone, even if you have your own business. Lots of rules and your exact circumstances dictate what you can do. It can be pretty confusing.

So let’s “un-confuse” it: When can you take a deduction and how much?

When can you take a home office deduction?

1. Exclusive and Regular Use: Space used for a home office must be used exclusively and regularly for business operations. No non-business activity can be conducted in the home office. That means no personal items in the home office.

2. Principal Place of Business: Your home must be used to substantially and regularly conduct your business. It’s okay if you also carry on business at another location, but your primary activities must be in your home office.

3. Employees: Wage earners may be able to deduct a home office if #1 and #2 apply AND it’s for the employer’s convenience, such as teleworking to reduce the employer’s real estate footprint.

What home expenses can be deducted?

4. Indirect Expenses: Expenses for keeping up and running the entire home, such as insurance, utilities, and general repairs are deductible based on the Business Use Percentage. A percentage of mortgage interest and real estate taxes can also be deducted.

5. Business Use Percentage: The business percentage equals the area of the home used for business divided by the total area. The most common method to calculate the percentage is dividing the square footage used exclusively for business by total square footage. Shared spaces, like hallways, cannot be included in office space.

6. Direct Expenses: Expenses that benefit only the area exclusively used for business, such as painting or repairs in the home office, are direct expenses that are fully deductible.

7. Unrelated Expenses: Expenses for the part of the home not used for business, such as lawn care or painting a room not used for business, are not deductible.

8. Simplified Option: A standard deduction is allowed of $5 per square foot used exclusively for business, limited to 300 square feet.

Qualifying for a home office deduction can really help reduce your tax liability, especially for business owners. The basic rules are outlined above. More rules are more on the IRS website. Check them out here.

Medical Expense Tax Tips

This time of year, people everywhere are talking about medical costs. People can’t control medical cost increases. However, some people can take advantage of medical deductions and reduce their income tax liability. They just need to know which expenses are deductible, who qualifies, and the limits.


These four important tax tips help taxpayers know the what, when, and how of tax deductible medical expenses:


  1. What are the Allowable Expenses?

Only medical and dental expenses paid during the tax year are deducted, regardless of when the services were provided. Allowable costs include diagnosis, cure, mitigation, treatment, or prevention of disease rendered by medical practitioners. This includes equipment, supplies, and diagnostic devices needed for the primary purpose of alleviating or preventing a physical or mental defect or illness, not merely to benefit general health, such as vitamins or a vacation.


  1. Who Qualifies?

Generally, only taxpayers who itemize their deductions (vs. taking the standard deduction) can deduct medical and dental expenses only if they exceed 10% of AGI (7.5% if you or your spouse was born before January 2, 1951). Allowable expenses generally include medical expenses paid for the taxpayer, spouse, and qualified dependents.


  1. What about Insurance Premiums?

Medical expenses include the premiums paid during the year for insurance that covers the expenses of medical care, and the amounts paid for qualified long-term care services.  Insurance premiums paid and for which a credit or deduction is claimed cannot be deducted.


  1. What’s Different for Self-Employed?

Sole proprietors, general partners, and S corporation shareholders owning more than 2% with net income from self-employment may be able to deduct, as an adjustment to income, amounts paid for medical and qualified long-term care insurance for the taxpayer, spouse, and qualified dependents. The insurance plan must be established under the business.


Taxes, including medical deductions, are complicated. Don’t go it alone! Get more details at or from a qualified tax professional.

Are Moving Expenses Deductible?

After month of looking, you found your dream job! It’s everything you’ve always wanted. Only problem is that it’s located about 500 miles away. Moving is expensive. You heard somewhere that moving expenses are tax deductible. Is that true?

Moving expenses can be tax deductible for “reasonable” transportation, storage, and other relocation costs, other than meals. But the deduction is only allowed under specific circumstances when you experience a job-related home move.

Answering three important questions will help you determine whether your moving expenses are eligible income tax deductions:

Is the Move for Work or Business?

To be considered a deductible expense, your move must correspond with the timing and location of starting a new job or business. Moving expenses that are incurred within one year of starting that new job or business can be considered for the deduction, assuming other tests are satisfied.

Is New Work 50+ Miles from your Old Home?

Your new workplace must be at least 50 miles farther from your old home than your old job location was from your old home. If you had no previous workplace, your new job location must be at least 50 miles from your old home.

Did You Work Enough Post-Move?

Also known as the “time test,” employees must work for 39 or more weeks during the 12-month post-move period to take advantage of the moving expense deduction. Entrepreneurs and owners must engage in their business for 39 or more weeks during the 12-month period.

The distance and time tests rules do not apply if you are a member of the Armed Forces and your move was due to a military order and permanent change of station. To claim moving deductions, file IRS Form 3903. Want more info? Check it out at