The IRS Deductions Blog

Posts Tagged ‘finance’

Question: Proper way to fill out Schedule E?

I rented out my house for 153 days in 2008 when I moved out of state. I lived in it for the other 213 days during the year. So, when filling out the Schedule E, should I include 153/366 (41.8%) of the expenses (real-estate taxes, mortgage interest, insurance, utilities, and depreciation) on this form, and then the other 213/366 (58.2%) of real-estate taxes and mortgage interest on the Schedule A? Does that sound correct?

I tried doing this in TaxAct. When I put in the 41.8% of the expenses into the system from my calculations, the system deducted an additional 41.8% from the expenses based on the Vacation Home Worksheet. So essentially, I only got to take 41.8% of 41.8% of my deductions. That does not sound correct.

Any help would be greatly appreciated!

Answer: If the house was rented under vacation home rules, you can only deduct expenses up to the amount of income generated.

Also, expenses must be deducted in specific order:

1. The rental portion (153/366) of the mortgage interest, real estate taxes, and casualty losses. The rental portion is subtracted from the rental income on Schedule E. The personal portion (213/366) of each expense is entered on Schedule A
2. Advertising, commissions, legal fees, office supplies, and all other expenses not related to the property itself.
3. Expenses related to operating or maintaining the property, for example, lawn care, painting expenses, cleaning expenses.
4. Depreciation and other basis adjustments to the dwelling, improvements, furniture etc, up to the amount of the rental income minus the deductions for 1, 2, and 3.

I expect the software is designed to follow these rules. Not sure how Tax Act works, but you probably only have to enter the numbers once on the worksheet, then let the software transfer the numbers over to the schedules you need. After you complete the worksheet, check your schedule A to see if the personal portion transferred over automatically. If not, then add the personal portion at that time. Then check Schedule E the same way. Subtract expenses in the correct order.

Rental expenses in excess of rental income carry forward until such time as you have enough rental income to deduct them, or until you sell the property. You cannot use losses from vacation property rental to offset other income from other sources.

Good luck

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Question: Is the tax deduction what we get for purchasing a home is like give and take ?

When we purchase a home and the year end tax deduction what we can claim on the house is it like give and take for the government ?

Ex:- If we pay $1000 as interest and property tax for the home
the government gives us back $50 and we are happy for that.

Its like we are giving government and its giving us in return 5-10% of what we have paid ?

Is it true ?

Answer: Taking a tax deduction reduces the amount of income that is taxed. It saves you money.

The government doesn’t PAY you, it’s just that your tax bill is lowered.

Whether you get a refund, or owe some at tax time depends on whether the total tax you paid or had withheld, is more or less that the tax bill after figuring your tax.

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Question: Home Equity Loan to repay 401(k) Loan?

I took a loan out of my 401(k) to pay for part of my down payment, and for renovations for a co-op I am purchasing. My thought was to repay the 401(k) with a home equity loan, the thought being that the interest on the HEL is deductible, versus no deductiblility for the 401(k). Are there any restrictions about what a HEL can be used for?

Answer: Technically, only funds used directly for upgrading property are tax deductible. That said, however, most people do deduct the interest paid on their home equity lines of credit from their taxes and only an audit would require you document the upgrades. Talk to your tax accountant/CPA since you would be using the funds to repay a 401K loan.

There are no restrictions on what you use the funds from a HELOC for. The equity in your home is yours to use as you please.

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Question: past year online gambling totals. +5300 winnings, -9800= -4500 total. can i claim all of it as a deductible?

Answer: I assume you’re asking about USA federal taxes. You can deduct gambling losses up to the amount of your gambling winnings, so in your case you can take a $5300 deduction.

Also, be aware that this is an itemized deduction, so if you don’t itemize you can’t take it at all.

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