All Forum Posts by: Josh Smith

Party 1 seems like a slam dunk no brainer over Party 2.

unreimbursed employee expenses are currently phased out at the federal level.

However, they may still be deductible at the state level.

However, for you to take advantage of the unreimbursed employee expense at the state level, you likely need to itemize your deductions.
Furthermore, you normally need to go above a certain threshold before they get counted as a deduction.

Also, do not factor in any costs that are reimbursed by your employer.
I.E. if you pay $1,000 for a continuing education course but reimbursed $1,000 by your employer. It would not be counted.

1. Yes, you're correct. If 50-60% of your house is rented out, you should generally be able to deduct that percentage of expenses, mortgage interest, and property taxes on Schedule E, which is used for reporting rental income and expenses.
2. When I mentioned, "If you were to convert SFH2 into a full rental without personal use, you might qualify for certain tax benefits associated with rental properties," it was referring to the fact that if the property is used exclusively for rental purposes and not for personal use, it may qualify for certain tax advantages. Some potential benefits include:
   • Depreciation: You may be able to deduct the cost of the property (excluding land) over several years, which can provide a significant tax benefit.
   • Additional Deductions: You may be eligible for additional deductions related to operating expenses, maintenance, repairs, and other costs associated with renting out the property.
   • Losses: If your rental expenses exceed your rental income, you may be able to deduct the resulting loss from your overall income, subject to certain limitations.
   • Tax Credits: Depending on the nature of the property and any improvements you make, you might be eligible for certain tax credits.

Keep in mind that the tax laws can be complex and subject to change, so it's advisable to consult with a tax professional who can provide advice tailored to your specific situation. They can help you navigate the intricacies of tax regulations and ensure you're maximizing your benefits while staying compliant with the law.

@Josh Smith

@Josh SmithMy colleagues were referring to Federal rules that no longer allow work-related expenses previously claimed on Form 2106.

CA, however, opted to not conform. It's a rare case when CA law is more beneficial than the federal law, usually it's the other way around. So yes, you can and should still use 2106 with CA 540. 

Now, to the less exciting news:

- you still need to qualify. For example, if working from home is your choice, and you could work from office but chose not to - it is debatable whether you qualify

- your expenses may not be enough to make a difference on your CA tax liability

1. Tax Perspective:
   • The tax implications of your arrangement could depend on various factors. Generally, if you rent out part of your property, you may be eligible for certain tax deductions related to the rental portion.
   • The IRS is primarily concerned with the amount of time the property is used for personal purposes versus rental purposes. If you use the property for personal use for more than 14 days or 10% of the total days it is rented (whichever is greater), it might be considered a personal residence.
2. Tax Classification:
   • The IRS does not have a specific category called "second home" for tax purposes. The classification often depends on how you use the property. If you use it personally and rent it out, it might be considered a "mixed-use" property.
   • The IRS typically distinguishes between a property used for personal use, a rental property, or a combination of both. The tax treatment could vary based on the percentage of time the property is used for personal use versus rental.
3. Advantages/Disadvantages:
   • Advantages of your current arrangement might include potential tax deductions related to the rental portion, such as property taxes, mortgage interest, and operating expenses.
   • Disadvantages might involve complexities in tracking expenses and income, and potential limitations on certain deductions if the property is not rented out for a significant portion of the year.
   • If you were to convert SFH2 into a full rental without personal use, you might qualify for certain tax benefits associated with rental properties, but you may lose some of the personal use benefits.

@Josh Smith

1 - not odd, don't worry

2 - "mixed use property" which is the same as vacation property. 

3 - an earlier answer to your question was correct that you cannot take losses, but it cited the wrong reason. The real reason is renting by room. When you rent by room, you cannot claim losses, period.

And I totally agree with both parts of this advice given to you: "The most advantageous from a tax perspective would probably be to have that second home to be a short term rental. But I wouldn't make a decision solely for tax purposes."

1) you shouldn't worry that it looks wrong. Work with a professional, keep good records and you're good. 

2) don't think it would have a specific name. It's a cross between an investment property and personal use property. 

3) Assuming you don't qualify as a real estate professional, assuming your AGI is above 150K, and assuming that this isn't a short term rental, the losses are considered passive and limited to this specific activity. If you block off these rooms and don't use for personal reasons, there's leeway to say that the rooms are considered it's own activity and it won't be limited. 

 The most advantageous from a tax perspective would probably be to have that second home to be a short term rental. But I wouldn't make a decision solely for tax purposes. 

Is your AGI between 100-150K?