I was just listening to today’s Rush Limbaugh podcast, and substitute host Roger Hedgecock started the show off with these excellent definitions:

A fine is a tax for doing wrong.

A tax is a fine for doing well.

Q:

Subject: Question from Maryland:  Rental to Primary

Hi Kenny,

Hope you can find the time to help. 

My wife and I purchased a home in December 2005 with the intent of using it as an investment rental property.  We tried , unsuccessfully, for about 3 months to find a tenant.  During this time, we made repairs to the property.  After about 3 months, we received an unsolicited offer from a buyer to purchase our PRIMARY residence.  The offer was simply too good to refuse.  We sold our PRIMARY and moved into the investment property.  The investment property was only an investment property for 3 months.  Can I deduct my expenses this year for depreciation and repairs made to the property during that 3 month period?

Thanks a bunch!

A:

This is the kind of issue you really need to work on with your personal professional tax advisor because it involves a lot of judgment calls, including taking into account your other rental experience.

For example, if this is the only rental property you would be reporting on your 1040, I would be much more hesitant to claim anything as a rental expense than if you already had dozens of other rental properties.

First off, you always need to keep in the back of your mind the fact that the burden of proving that you are entitled to each specific deduction is 100% on you and you need to be ready to defend your position if IRS were to challenge it. 

In a more general sense, you should be able to deduct the direct costs of specifically trying to rent the home, such as ads you paid for. 

On the other hand, repairs and capital improvements that you ended up using personally would be very difficult to justify deducting as rental expenses.

Similarly, claiming depreciation would also be inappropriate.

Again, your personal professional tax advisor should be able to address each specific expense more intelligently in relation to your circumstances.

Good luck.

Kerry Kerstetter

Follow-Up:

Kerry,

Thanks so much for the fast answer!

 

Last-Minute Tax Gifts From Congress – From Gail Buckner

Slim financial books offer (mostly) wise advice – Some book reviews from Lynn O’Shaughnessy.   I’ve added all six of these books to my Amazon store.

The Payroll Tax Trap. Will Bush’s legacy be a huge new burden on the most productive Americans? – For anyone who has been putting off the use of corporations and other techniques to save on payroll taxes, you only have yourself to blame when those taxes eat up an even larger share of your income.

Q:

Subject: CA Corporation filing fees

 

Hi Kerry,

 

Could you please elaborate a little on your statement below since I am reading on the CA. Secretary of State website that the CA filing fee is $100.

 

What I have found is that it is much easier to just set up a brand new virgin corporation, especially in states like Arkansas and Missouri where it only costs $50 in filing fees.  In states like California, where the filing fees are in the thousands, this strategy is a bit more expensive and needs to be evaluated a little more closely.

 

Thanks

A:

It’s been a few years since I’ve been involved in setting up a new Calif corp; but it used to be required that new corps submit non-refundable payments for their first and last minimum taxes along with the paperwork filing fee.  That was an additional $1,600 up front cost, which other states that don’t have minimum taxes don’t require.

A tax pro who is more current on the costs of setting up a new Calif corp can give you more specifics for the actual cost nowadays.

I hope this helps.

Kerry Kerstetter

 

State politicians are creating a de facto national sales tax. – No surprise here. We all knew that sales taxes on internet purchases were inevitable.