Although the tax rules in this area are convoluted-even for the Internal Revenue Code-most people with AGI under $100,000 can deduct up to $25,000 worth of losses from investment real estate each year. “As your AGI grows to $150,000, the allowable deduction shrinks to zero,” says Barrie Adedeji. “However, any losses you are not allowed to deduct are banked, to offset any gains when you eventually dispose of the property.” In addition, you may be able to claim tax credits for money you put into restoring a building constructed before 1936.
Just as some “passive losses” from investment property operations may not be deducted right away, the same is true of “capital losses” (from securities trading or real-estate sales) that exceed $3,000 per year. Such unused losses may be “carried forward” and used in future years.
Thus, when you prepare your tax return this year, you need to keep track of old carry-forwards and, if possible, use them. “If you or your tax preparer use the same software program and maintain continuity, the carry-forwards will be picked up,” says Adedeji.
Those good recordkeeping skills are especially important if you drive a car on business. Smith, for example, drives his own car and his company reimburses him on a per-mile basis. “I keep time sheets showing how many miles I drive for business each day,” he says. “Reimbursements are based on those records.”
If you’re reimbursed by your employer, you may be able to write off the business use of your car; keeping a log will enable you to determine the extent of the deductions you can take. (The miles you drive to and from work don’t count as business use.)
Suppose, for example, you have a car you use 70% of the time for business. “You can deduct 70% of the cost of the vehicle,” says Slott, “as well as the costs to maintain and run it, which might include gas, oil, repairs, auto insurance, tires, license and registration fees.” The cost of the car itself will be recovered through depreciation expenses.
“You can also choose to take a standard mileage deduction,” says Slott. “In 1999, that deduction was 31 cents per business mile, going up to 32.5 cents in 2000. If you keep thorough records of your driving and auto expenses, you can decide which method would be better when you file your tax return. However, you must use the standard-mileage rate the first year you use a car for business if you want this option in future years.”
Those rules hold true if you’re self-employed or if you otherwise report business income on Schedule C of your tax return. However, if you’re an employee, those costs are considered “employee business expenses,” which are included under “miscellaneous itemized deductions,” along with items such as tax preparation and investment-related expenses. All your miscellaneous deductions are totaled and deductible only to the extent they exceed 2% of your AGI. “The whole process is so complicated that I use my company-provided car only for business and keep