Author: Leon Clinton

If you own rental properties that can provide you tax shelter with their losses and your Form 1040 adjusted gross income is less than $150,000 (without considering rental losses), you need to overcome the tax code passive loss rules.

Here are some important points.

Keep a time log. Make sure your time log proves you pass the

1. more-than-half-your-work-time test,
2. more-than-750-hours test, and
3. material participation tests for each of the properties, or group, if you elected to group them.

Tax law contains seven possible material participation tests. You materially participate in a property if you pass any one of the seven tests. But realistically, it’s likely you have only two of the seven tests that apply, as follows:

1. You (and your spouse, if married) materially participate in a rental if you perform substantially all the work on the rental.
2. If others participate in the rental, you (and your spouse, if married) materially participate if (a) you participate in the rental 100 hours or more and (b) no other individual participates more than you.

Consider this example. You rent out a single-family home. You hire a gardener who comes weekly to mow the lawn and take care of the landscaping.

To materially participate in this rental

• you must materially participate for 100 hours or more, and
• that must be more than the gardener spends working on this rental home.

Do you have proof? You need proof of not only your work time but the work time of your gardener.

If you would like to discuss your rental properties, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• August 18, 2021

When you travel to a business location where you spend the night, you are in travel status. But will the tax rules make this a business or personal night?

The rules also affect your costs during the day. When you have an overnight business travel day, you generally deduct your costs of sustaining life for the day, such as breakfast, lunch, dinner, snacks, drinks, lodging, and taxis.

Business days also are important in determining how much of your travel cost you may deduct. For example, on a seven-day trip to London, one business day makes the airfare deductible.

Yep, you heard that right. Six personal days and one business day in London—you deduct 100 percent of the airfare.

Transportation days are the trickiest days. 

Days spent traveling to or returning from a destination outside the United States are treated as business days—provided you use a “reasonably direct route” and you don’t engage in “substantial diversions for non-business reasons” that prolong your travel time.

If you don’t use a reasonably direct route, you count as business days the amount of time that a reasonably direct route would have taken. 

Similarly, if you engage in substantial non-business diversions, you count as business days the amount of time it would have taken without such diversions.

These rules apply to whatever mode of transportation you use. So if you travel by airplane and don’t take a reasonably direct route, you count as business travel days the number of days an airplane would take to reach your destination by a reasonably direct route. The same is true for travel by car or cruise ship.

Once you are at your business travel destination, if a Saturday, a Sunday, a legal holiday, or another reasonably necessary standby day intervenes while you endeavor to conduct your business with reasonable dispatch, you treat such a day as a business day.

If you have questions about your business travel, please don’t hesitate to call me.

• By Leon Clinton
• August 13, 2021

Qualifying for tax deductions on a yacht or other luxury boat requires tax knowledge.

First, more than 50 percent of your use of the yacht must be for business transportation.

Once you meet the “more than 50 percent” test, your potential tax deductions include fuel costs, insurance, repairs, dock or slip fees, caretakers’ salaries, hurricane storage, and depreciation (including IRC Section 179 deductions)—all of which are limited by tax rules on luxury water transportation. 

Second, the yacht is an entertainment facility. Tax law treats entertainment facilities harshly, so you need to seriously consider providing no business entertainment on this yacht. This should be easy to do because business entertainment is no longer deductible, thanks to the Tax Cuts and Jobs Act.

The luxury water travel limits can change monthly. During 2020, the lowest luxury water travel limit was $760 a day and the highest was $988. Say that your yacht expenses exceed the daily limits and that you used your yacht 45 days for business transportation. At the lowest limit, your yacht deductions would be $34,200 (45 x $760)—not a bad payoff for a little tax knowledge.

If you would like to discuss your possible yacht deductions, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• August 8, 2021