Business Strategies, business taxes, Family Tax Issues, General Information, REAL ESTATE, RUNNING YOUR BUSINESS, Self Employed, signing agent, Tax Reduction, TAXES

Unlock Tax Deductions with a Rental Property Home Office

 

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With the start of a new tax year, you’re probably looking for new tax savings opportunities, like our Chicago South Loop Tax Preparation clients.

As you probably know, establishing a home office for your Schedule C or corporate business creates valuable tax deductions.

But it’s not available only for your proprietorship,partnership, or corporate business. If you have rental properties, you can establish a home office to manage your rental properties and deduct the cost on your Schedule E.
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Rentals as a Business

The first hurdle is that your rental activities have to qualify as a “trade or business” under the tax law.

Luckily for you, that’s relatively simple—you’ll need regular and continuous involvement with your rental activities to meet this requirement.

Whether or not your rental activities are a trade or business depends on the facts and circumstances of your particular situation, and tax court cases give us guidance on that.

Qualifying Area

Your second hurdle is setting aside space in your home that qualifies for the home-office deduction.

For this to work, you need to use that space in your residence regularly and exclusively as the principal place of business for your rental activities.
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This sounds hard, and it was hard—before lawmakers changed the rules to include, as a principal place of business, the space you use for administrative or management activities, provided there is no other fixed location where you conduct substantial administrative or management activities.

Home-Office Deduction

Establishing a rental property home office does two things to your household expenses:

  1. Turns non-deductible household expenses into tax deductions.
  2. Moves household expenses normally deductible on Schedule A to your rental properties on Schedule E.

The latter is especially important after passage of the Tax Cuts and Jobs Act

  • put a $10,000 limit on your Schedule A state and local tax deductions, and
  • lowered the amount of your mortgage on which you deduct mortgage interest from $1 million to $750,000.

Eliminate Commuting

Without a qualifying home office, your mileage from home to your first business stop and then from your last business stop back home is non-deductible commuting mileage.

But here is what happens with the rental property’s principal office in your home:

  1. You have no commuting mileage from your home to and from your rentals, if the rentals are in the area of your tax home (say, within 50 miles).
  2. You establish your rental property tax home, and if your rentals are outside the area of your tax home, then the mileage from your home to and from the rentals is deductible business mileage because you are traveling outside the area of your tax home.

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Real Estate Professional

If you qualify as a real estate professional under the tax law, then you can deduct 100 percent of your rental losses in the year you incur them.

But there’s a big hurdle to the tax law classification as a real estate professional. You must show that you spend

  • more than 50 percent of your personal service work time in real property trades or businesses in which you materially participate, and
  • more than 750 hours of service during the tax year in real property trades or business in which you materially participate.

Having a rental property home office that qualifies as a tax-code-defined principal place of business makes it easier to qualify as a real estate professional, because your time spent on deductible travel to and from your rental properties counts toward the time requirements.

Claiming Your Deduction

The Schedule E instructions not only fail to provide any explanation about where to put your home-office deduction, but they also do not even mention a home office.

But the instructions do say that you can deduct ordinary and necessary business expenses, and the home office meets that rule. Also, as established in Curphey (a precedent-setting case), the home office is allowable as an expense against income from a rental business.

If you would like to discuss your rental properties with me, please call us directly at 855-743-5765. Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, need help with tax debt, business tax preparation, business entity creation, business insurance, or business compliance
assistance please contact us online, or call our office toll free at 1-855-743-5765 or locally in Chicago or Indiana at 1-708-529-6604. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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Family Tax Issues, General Information, Retirement Income, Self Employed

12 Things you need to know about your parent.

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While I am focused on helping small businesses grow by reducing their taxes, and organizing their books, I firmly believe that health of body and mind leads to wealth. To help you be better prepared in the event of an emergency involving your parents/loved ones, below (in order of importance) is a list of 12 things you need to know about your aging parents’ health.  If you have any questions, comments, or concerns, please don’t hesitate to call us!

WHAT ARE THE NAMES OF THEIR DOCTOR’S & SPECIALIST? If you don’t know anything else, this is probably the most important piece of information. Why? Chances are good that your parents’ doctors can provide much of the rest of the information needed as well as more details about your parents’ specific health histories.

Do they have any major medical problems? This includes such conditions as high blood pressure, diabetes, heart disease, etc.

What Medications are they on? Have a list of medications and supplements. It’s especially important that a doctor know if your parent uses blood thinners. It’s also important for your doctor to know if your parents take any vitamin or herbal supplements (as these might interact with medications given in an emergency situation.

What is their previous medical history? Have they had any surgeries and major medical procedures? List past medical procedures including implanted medical devices such as pacemakers.

What is their insurance information? Know the name of your parents’ health insurance provider and their policy numbers.

What Are their End-of-Life Wishes? For instance: Would you want a ventilator and feeding tube used to keep you alive even in an irreversible coma? Do you want CPR initiated if your heart stops, even if you are terminally ill? Make sure the health care proxy is aware of your parent’s decisions.

Do they have any ADVANCE DIRECTIVES? An advance directive (living will, Do Not Resuscitate aka DNR, etc) is a legal document that outlines a person’s decisions about his or her health care, such as whether or not resuscitation efforts should be made and the use of life-support machines.

Have they named a durable power of attorney to manage their finances, or healthcare?
The first step is to find out if they have named a Durable Power of Attorney (POA). Without a POA in place, you’ll have to go to court to get guardianship of your parent in order to access accounts on their behalf.

Where do they keep their financial records and important documents?
Whether they keep their money and documents in a bank, a safe, or under the mattress, you need to know where to find records when you need them. What is the location of keys or codes to lock boxes or safes?

What are their bank account numbers and names of their financial institutions?
In addition to knowing where they keep their money, you need specifics on all account numbers. What banks do they use? Who is their mortgage company? Do they have an investment firm?

What are your parent’s monthly expenses?
Gather information on their mortgage, car payment, credit card debt, electric bill and other expenses.

How do they pay their bills currently, ESPECIALLY THEIR LIFE INSURANCE!!
If there are automatic deductions being taken out of a checking account, you need to know about it. Do they use online banking, or are they mailing in paper checks? DO NOT ASSUME!

This list was provided to us by our partner nonprofit agency  Senior Resource Group Inc. The mission of Senior Resource Group Inc.

is to remove access barriers to service, empower seniors through education, lower prescription drug cost, consolidate resources, and mobilize assistance.

Senior Resource Group Inc. services range from locating no cost insulin for diabetics; applying clients for prescription drug grants; locating local/state/federal and private assistance programs; explaining Medicare; and identifying the lowest cost Medicare supplements, health plans, & insurance solutions. Each of our clients are given an extensive individual interview so that our advocates can uncover every transportation, tax, food, and medical discounts he/she may qualify for.