Taxpayer asks:

Since 2002, I have owned (via a single-member LLC) an office complex in upstate new york. I purchased it as an investment to either sell or rent. Unfortunately, this property has been vacant and producing no income as a result of town opposition to the use of the property for office purposes. Similarly, the market value was destroyed by the Town. 

My property taxes paid 2018 are approx 20,000.00. My CPA says that his CCH program does not allow for the full deduction and that it defaults to the 10,000 SALT limit.

I am wondering if you have any experience with the applicability of the SALT deduction to a vacant rental or investment property. Any help would be appreciated. Thanks,

Taxgirl says:

The $10,000 SALT limits cap the aggregate of individual state and local taxes, including real estate taxes. But some taxes don’t apply – those are spelled out at section 164 of the Tax Code which says:

The preceding sentence shall not apply to any foreign taxes described in subsection (a)(3) or to any taxes described in paragraph (1) and (2) of subsection (a) which are paid or accrued in carrying on a trade or business or an activity described in section 212. (emphasis added)

In other words, the cap doesn’t apply to state and local taxes that are paid or accrued in carrying on a trade or a business or an activity described in section 212. Section 212 says:

In the case of an individual, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year:

 (1) for the production or collection of income;

 (2) for the management, conservation, or maintenance of property held for the production of income; or

 (3) in connection with the determination, collection, or refund of any tax.

So that rental real estate you have? You’re using it to produce income, right? Then it should not be subject to the cap. The cap is intended to apply to those state and local taxes claimed on a Schedule A.

I don’t know whether your CPA is getting hung up on the vacancy bit. The timing could be an issue. You didn’t say how long the property has not been producing income, but the IRS likes to see businesses making money. A good rule of thumb is that you should be showing a profit three of five years. If you have not made money for years, it may be that your CPA is treating the investment as a hobby or personal asset instead of as a business. I’d ask him to explain his thinking, and if you’re not satisfied with the answer, seek a second opinion.

Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.

Better late than never: The Internal Revenue Service (IRS) has issued the 2020 standard mileage rates. Beginning on January 1, 2020, the standard mileage rates for the use of a car, van, pickup or panel truck will be:

  • 57.5 cents per mile for business miles driven (down from 58 cents in 2019)
  • 17 cents per mile driven for medical or moving purposes (down from 20 cents in 2019)
  • 14 cents per mile driven in service of charitable organizations (currently fixed by Congress)

If you’re wondering about the difference in the rates for business and medical or moving purposes, there is a reason. The standard mileage rate for business is calculated by using an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas, and oil. In contrast, the rate for medical and moving purposes is based just on the variable costs.

Standard mileage rates are used to calculate the amount of a deductible business, moving, medical, or charitable expense (miles driven times the applicable rate). To use the rates, simply multiply the standard mileage rates by the number of miles traveled.

If you use your car for more than one use, you’ll want to keep appropriate records and back out the cost of personal travel. You may also use more than one rate on your tax return. Let’s say, for example, that you drive 20,000 miles in 2020. Of those miles, 10,000 are for personal use, 2,000 are for charitable purposes, and 8,000 are for medical purposes. You would calculate your deduction as follows:

10,000 personal miles x 0 = 0

2,000 charitable miles x .14 = $280

8,000 medical miles x .17 = $1,360

In this example, your total deductible mileage related expenses would be $1,640, plus any related charges such as parking fees and tolls. You would report your charitable and medical mileage deductions on the applicable lines on Schedule A. Keep in mind that medical miles are still subject to the floor for medical expenses: fortunately, Congress just lowered the floor for medical expenses to 7.5% for 2019 and 2020.

What about business mileage? Following tax reform, taxpayers can no longer claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. That deduction was eliminated from Schedule A alongside similar deductions like the home office deductionThis does not affect any deductions that are correctly claimed on a Schedule C for the self-employed, freelancers, and independent contractors.

Similarly, most taxpayers can no longer claim a deduction for moving expenses. However, an exception applies to members of the Armed Forces on active duty moving under orders to a permanent change of station. 

If these rates don’t adequately reflect your costs, you have the option of deducting actual expenses rather than using the standard mileage rates—though admittedly, that’s a lot more work.

One more thing: these are the rates for the 2020 tax year for the return you’ll file in 2021. You’ll use the 2019 standard mileage rates for the tax return that you’ll submit in 2020.

Kelly Erb is a tax attorney and tax writer. For more, check out my About page, like me on Facebook, or follow me on Twitter and LinkedIn.