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3 Conditions for Deducting Personal Property Taxes

Mar 6th 2017
property taxes
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As the April 18 federal income tax deadline inches closer, here are some filing-time reminders you can give to your clients:

Q: Under what circumstances am I allowed to deduct personal property taxes?

A: Only if you forego the standard deduction and itemize on Schedule A of Form 1040. In that case, a personal property tax may be deducted, provided it meets the following three conditions:

  1. The tax must be based on the value of the personal property.
  2. The tax must be imposed on an annual basis.
  3. The tax must be imposed on personal property.

Q: My sister and I formed a partnership. The partnership’s main asset is a building that leased space to an architect last year. Subsequently, the architect decided to make substantial improvements to her office. Does our partnership have to declare the value of these improvements as part of its rental income?

A: No, as long as the improvements aren’t a substitute for regular rental payments. But IRS regulations prohibit landlords from claiming any depreciation deductions for improvements that are paid for by tenants.

Q: I keep my savings at a bank that credited interest of $900 to my account in December 2016. But it wasn’t until last month that I took the passbook to the bank, which then entered the interest. Am I supposed to show the interest on my 1040 form for 2016 or 2017?

A: Report the $900 on your return for 2016. The entire $900 was included in the Form 1099 for 2016 that you received from the bank.

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