LAST-MINUTE TAX SAVERS

Here's how to sharpen your filing skills and get some of the deductions you're entitled to

use your home-office for administrative purposes, you’re eligible for deductions as long as you have no other fixed location for those chores,” says Ed Slott, a CPA in Rockville Centre, New York.

So what’s the downside? You’ll find out if you ever decide to sell your house. Under current law, you owe no tax on $250,000 worth of long-term capital gains on the sale of a principal residence; for married couples, this exemption is $500,000. However, the portion of your house used for a home-office won’t qualify for this tax break. If you have been claiming one-tenth of your home as a home-office, for example, one-tenth of the home won’t be eligible for the capital-gains tax exclusion. In addition, deductions for home-office depreciation will be “recaptured” and taxed at 25%. “The solution,” says Slott, “is to not call your home-office a home-office any more. You must discontinue use of it at least two years prior to the sale, so plan ahead.”

If you decide not to claim a home-office deduction, you can still deduct business expenses incurred in your home: wages paid to employees, supplies, stationery, postage, business-telephone expenses and depreciation of business equipment.

INTEREST EXPENSE
As you go through your financial records for 1999, you may be shocked by how much interest you paid on credit cards last year-none of which is deductible.

James Hunter, 34, who runs Hunter Controls Inc. in New York City, opted for a more tax-effective alternative. “We made major home improvements last year and refinanced our [home] loan,” he says. “When we refinanced, we borrowed enough to pay off our credit card balances, too. Now I pay just one bill per month and the interest is deductible.”

According to Willock, “Interest on debt you incur to buy, build or substantially improve your home is deductible, up to $1 million. In addition, you can deduct the interest on home-equity lines of credit up to $100,000. Often, it makes sense for you to use a home-equity loan to pay off credit card debt, converting high-rate nondeductible interest to lower-rate deductible interest.”

REAL ESTATE
Besides credit card interest, you may have paid a massive amount of rent every month without anything to show for it at tax time. If so, consider home ownership, which provides mortgage interest and property-tax deductions.

Going one step further, buying investment property can deliver even greater tax benefits. “If your expenses exceed your income from the property, you can deduct losses, including those from depreciation, which is a paper expense,” says Michael Jones, who, along with Hunter, heads a corporation that renovates classic Harlem brownstones for upscale residents. “Then, if you sell the property at a profit, you’ll get favorable rates on long-term capital gains.” Long term here means the property must be held for more than a year. However, the property must be held for more than a year in order for the gain to be treated as long-term. “Sometimes,” says Jones, “we postpone selling a property until the one-year mark has passed in order to get lower tax

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