Question

relevant / not relevant a. will the renovation expenses qualify for the tax credit for rehabilitation expenditures? relevant b. what is the impact of passive activity loss rules on deductibility of rental losses (if any) once the building is renovated? not relevant c. can he take the office in the home deduction? the tax cuts and jobs act suspended the business use of home deduction from 2018 through 2025 for employees. only self-employed taxpayers are eligible for the home office deduction. not relevant d. how much depreciation expense can he take once the building is placed in service? relevant e. how will he allocate expenses between rental and personal-use portions of the renovated building? relevant f. has clint been self-employed for more than one year? not relevant g. will clint be able to use a nonrefundable credit?

Answer 1

Renovation expenses may qualify for the tax credit for rehabilitation expenditures. Expenses can be allocated between rental and personal-use portions of the building, based on factors like square footage and time of use. The amount of depreciation expense depends on the cost basis of the building, useful life of assets, and depreciation method.

Step-by-step explanation:

To determine whether renovation expenses qualify for the tax credit for rehabilitation expenditures, you need to review the specific requirements outlined by the tax laws. In general, expenses incurred for substantial renovation or improvement of a qualified building may be eligible for the tax credit. The credit amount is usually a percentage of the qualified expenses, subject to certain limitations.

To allocate expenses between rental and personal-use portions of the renovated building, you can consider factors such as square footage, time of use, and the purpose of the expenses. For example, if a portion of the building is used exclusively for rental purposes, the related expenses can be attributed to the rental portion. It's important to keep accurate records and consult with a tax professional for guidance.

The amount of depreciation expense you can take once the renovated building is placed in service depends on factors like the cost basis of the building, the useful life of the assets being depreciated, and the depreciation method chosen. Generally, residential rental properties are depreciated over 27.5 years using the straight-line method. The IRS provides guidance on the specific rules and limitations for depreciation.