Hi, I'm Ben with IRS Tax Relief com. You know, this past month or so, I've received two phone calls and I also got an email this morning from a client. All three of them owned rental properties, and all three of them wanted to know what is the difference between a capitalized expense and repair expense for a rental property. In particular, what can they do to ensure that the IRS will not try and reclassify it as a capitalized expense? Now, let me start out by saying, there's nothing you can do to keep the IRS from challenging your deductions. I do it all the time. The IRS wants these expenses to be capitalized, and you want them to be classified as repairs. The reason why is, if it's a repair, you get to write it off immediately. If it's a capitalized expenditure, you have to write that off over the class life of the asset. Now, a residential rental property is twenty-seven and a half years, so that's quite a long time. The $27,000 deduction is going to get you less than a thousand dollars a year. That's not going to help you much on your taxes. In fact, let me read this email that I got this morning. This is Ben. "In order to ensure the IRS will agree with a particular expenditure net property, be deemed as an expense and not an expenditure that needs to be capitalized, what can be done? Does an invoice or receipt need to be worded in a certain way? Is there a timing of payments, perhaps? In particular, we have a property that needs to be painted. It cost twenty-five thousand dollars. I'd love to expense it fully this year and not over twenty-seven and a half years." Let me start...
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Election to maximize the investment interest deduction Form: What You Should Know
Taxpayers may also be able to deduct additional interest expense if it's allowed under state law or any federal tax law. The choice is based on whether the return would result in a higher tax liability, as investment interest generally is a capital gain. Other options to maximize investment interest deduction Tax-free interest The interest expense is deductible if it is interested in an educational investment Interest is deductible as a capital gain if earned interest in an educational investment is taken into account in determining taxes on your earnings. The IRS also allows educational loans to be deducted on your return as an interest deduction, if your debt is over 5000. The interest expense is deductible as long as it's interest in an educational investment, and it's not for personal property. It is referred to as “qualified educational loans.” Educational loans are generally treated as interest income, subject to a 15% limit on deductions. Deductible interest is treated as a capital gain and is subject to a 15% limit and any limitation on deductions on the basis of the type of property used to generate interest. The limit is the same for educational loans as it is for personal property. To qualify for the deduction, the interest is considered education expenses in the taxable year in which it is incurred. Tax-Free Education Loans A tax-free interest income deduction is available to taxpayers who borrowed money for education expenses, such as books, instructional materials, tuition and fees, or fees, and paid the amount of the loan for tuition and fees at or below the rate of interest on that same loan. For the purpose of calculating the deduction, tuition will also be considered as a means of education. Qualified Loans Education loans for educational expenses are not subject to income and payroll tax. As long as the student has met the eligibility requirements, they can qualify on a single loan. Deductible Education Loan Interest in One Year If you borrowed the money to help pay for tuition, room and board or a tuition-related fees, or for other qualified education expenses, you may be able to deduct a portion of the loan by using IRS Form 4952 to figure your tax liability.
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