House Hack - Tax Write-Off for Tools/Lawn care??

Question

I am about to close on my first house hack investment, a duplex, using an FHA loan. There will be renters in one half and I'll live in the other. Having been a renter my whole adult life I own minimal tools and zero lawn care or snow removal equipment.

Since I will be a landlord and these products will be taking care of my investment property and tenants am I able to purchase and write off things like a lawn mower, weed wacker, basic handyman tool kits? These would be items necessary for the normal operation of my business. Could I take it a step further and have my half of the duplex, my primary residence, be considered my office where I conduct my business and things like paint or a home office set up be deducted?

I understand I should direct these to a qualified CPA to help with my tax planning and preparation. I am in the process of finding and vetting options at the moment, but while I'm doing this I would love to hear what others have done!

Michael Plaks · Answer

@Joe Livsey

Start your NY CPA search with @Nicholas Aiola and @Basit Siddiqi.

As @Bobby Lee explained, you're entitled to deduct tools used for business. When you also use them for personal benefit, you're supposed to deduct a business portion. It is subjective, just as using your laptop and your phone. Investors like to claim that their tools and equipment are 100% business, and some accountants look the other way on such stretches, especially when amounts are small. The IRS is likely to reduce such amounts during an audit.

Home office - no, and for more than one reason. If you have a room or a designated area regularly and exclusively used for business - then yes, you may have a prorated deduction, based on that room only, and you can deduct repainting this specific room. But can you claim with a straight face that you really need a designated office to manage the other side of the duplex?

Bobby Lee · Answer

Hi Joe,

Yes it would be a tax deduction. But if you're also using it for personal use, then only the portion used for business (rental) would be deductible. If anything was purchased to fix the rental only, it's 100% deductible. If something was purchased to benefit both the rental and your primary residence, then you deduct the ratio of benefit to the rental. Typically you can calculate this by dividing your rental square footage by total square footage of both sides - and that's your ratio. This is the type of calculation you'd do if you repainted the whole place or resod the entire lawn.

As for your office, 50% of your home is too much office space. Think about it - you probably won't store supplies in your kitchen or bathrooms so you're saying you're using half your bedrooms and most of your living room? If you are then go for it, because if an audit comes around you can prove it.

Now I'm sure you can find CPAs that will give you 100% deduction no matter what and allow that 50% home office, but you're increasing your risk for audit. That being said, these same CPAs also know the IRS is understaffed so something like 1% of returns are being audited so they're willing to paint you a rosy picture about giving you tax deductions and large refunds to get your business. Just be aware and know your risk tolerance.

Michael Plaks · Answer

So now it is a definite no. Home office used for your day job is not deductible.

Joe Livsey · Answer

@Bobby Lee & @Michael Plaks

Thank you both for your replies it sounds like my thinking is not too far off. I am not a stretch the law kind of person so I would ensure that my deductions are all legitimately used for the tenants either in full or calculate the appropriate amount.

I may not have painted a full picture of the "home office" in my side of the duplex. Its a 3 bedroom apartment so I will definitely be converting the smallest bedroom into an actual home office where I will work for my day job as well as well as grow my real estate portfolio/operation. I would not want to call my entire apartment a home office. Hope that clarifies my statement earlier!

House Hack - Tax Write-Off for Tools/Lawn care??

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