The Washington herald., 1920-03-06
Income Tax Facts
You Should Know

In these days of high rentals and
excessive cost of maintenance and up
keep, both landlords and tenants are
inQuiring as to their allowable deduc-
tions in the filing of an income-taX
return.
Where property is held for renting
purposes the owner may deduct the
cost of,securing tenants. such as COM
missions TO real estate agents, adver-
tising, etc. and the expenses OF main
tenance, such as ordinary repairs,
lights, fuel. janitor service, and in
surance. If the owner occupies part OF
the building as his dwelling, the ex-
penses must be apportioned, and only
those relating TO the part which is
rented may be deducted.
\ tenant may deduct the rent paid
for business premises. but not his
home, which is a personal or living eX-
pense.
Taxes paid by a tenant to or for a
landlord for business property are ad-
ditional rent and are deductible by the
tenant. Such items represent income
to the landlord, and therefore must be
included in his return of gross income,
but may be claimed by him, also, as a
deduction. The cost of erecting build
lngs or permanent improvements on
ground leased by a taxpayer is addi-
tional rental and therefore deductible
from gross income, provided such
such buildings and improvements re-
vert to the owner of the ground at the
expiration of the lease. In such cases
the cost of the Improvement may be
prorated over the term of the lease so
that a proportionate amount will be
deducted in nf hn
Having deducted the cost of such
buildings as rental, the lessee is not
allowed a deduction for depreciation,
but the cost of ordinary repairs neces-
sary to their maintenance and upkeep
is an allowable item.
When at the expiration of the lease
such property reverts to the owner of
the land its value is considered tax
able income TO the landlord for the
year in which received.
Under the heading of "Deprecia-
tion," owners are permitted the
deduction of "a reasonable amount
for the exhaustion, wear and tear
of property used in trade or busi-
ness, including a reasonable allow
ance for obsolescence." This deduc-
tion must be made as a separate
item of the return and must be eN-
planned by showing separately each
class of property, its cost or value
at the date of purchase Con or be-
fore March 1, 1913. If acquired on
or before that date), estimated life,
depreciation charged for the taxable
year, and total depreciation charged
for all taxable years. To be allowed,
the amount claimed for depreciation
must be charged off the books OF
the taxpayer, either by deducting il
directly from the ookNvalue of the
assets or crediting il to a deprecia-
tion reserve fund so that il will he
reflected in the annual balance sheet.
Depreciation may be claimed on
all business property, which includes
not only buildings but machinery
of permanent character, automo-
biles, farm tractors, mine and
mill equipment, Office furniture and
books. The rates at which deprecia-
tion is allowed are not fixed by the
law or regulations and are deter
mined by the circumstances gov
erning each particular case. The
ordinary method is by determining
the lifetime of the property and di-
viding its cost by the number OF
years it will be usable in the busi-
ness in which ii is employed.
Deductions for depreciation are
limited strictly to property used in
the taxpayers trade or business. No
such allowances are made for auto
mobiles or other vehicles used
chiefly for pleasure. the taxpayers
nor the furnishings there
in, personal effects, or clothing.
Property or clothing used exclu-
sively in a theatrical business, how
ever, may be the subject of a depre-
citation allowance.
Intangible property, the use OF
which in trade or business is def
nitely limited in duration, may be
made the claim for a depreciation
allowance. Examples are patents,
licenses. and franchises
Intangibles, the use of which is not
so limited. will not usually be the
proper subject of such an allowance