The Waterbury Democrat. [volume] (Waterbury, Conn.) 1917-1946, 1943-01-30
YOUR INCOME
TAX
No. Fl
INCOME FROM RENTS AND
ROYALTIES

Many taxpayers derive income
from rents and royalties. Such in
come is shown in item 8 Of the re-
turn Form l040. Only the net in
come-or loss-is shown in item 9;
that is, the difference between the
total amount received in revenue
from the property less the total
amount received in revenue from
the property less the total amount
Of the ordinary and necessary ex-
penses incurred. An explanation
Of income, chargeable expenses, and
the kind Of property, must be shown
in Schedule B Of the return.
The kind Of property" might be
Indicated as a farm, dwelling, store
building, or the like. The chargeable
expenses are shown under three
headings, as (a) depreciation al.
lowable. (b) repairs, and (c) other
expenses. Where depreciation Is
claimed, q further explanation Is
required in Schedule ] (Explana-
ton Of Deduction for Depreciation
Claims. Repairs and other expens-
es must also be explained and item
lied.
A distinction must be made be-
tween expenditures for maintenance
and repairs and expenditures for
requirements. improvements, and
alterations. Replacement expense, to
the extent that the requirements
arrest deterioration and appreciably
prolong the life Of the property, Is
not chargeable against rental in
come for the year, but Is charge
able to capital or the depreciation
reserve. Only the cost OF incidental
repairs which neither materially
add to the value Of the property nor
prolong its life, but serve
to keep 1t in an ordinary efficient |
operating condition, may be de-
Quoted as repair expense in Sched- |
ule B.
The distinction between what Is |
an improvement and an alteration |
and, what Is q repair, is not always |
clear, and has been the subject Of |
many rulings and decisions. The |
cost Of painting the outside Of a
house used for business purposes |
(rental) and the cost of painting |
and papering the inside. for in
stance, are regarded as repairs, de-
ductible as expense In Shchedule B.
The replacement Of q roof or Q
change In the heating liant. plumb
Ing system, or other major altera-
ton, Is regarded as in the nature Of
q capital expenditure and Is not de-
ductible as repair expense in Sched-
ule B.
Among "other expenses" deducti-
Bile in Schedule B are such items as
the cost of janitor service, water
service, fuel. fire insurance, and the
like, as well as taxes and interest
expense. If taxes and interest are
deducted as other expenses" they
may not be deducted under the sep
arate items of taxes and interest In
the return.
Where o dwelling is partly rented
and partly occupied by the taxpayer,
only those expenses chargeable to
the rented portion are deductible. In
the case of q two-family dwelling,
for instance, one-hah Of which Is
occupied by the owner. ordinarily
of the depreciation allow
able, repairs and other expenses,
would be deductible from the rent |
received.
Royalties are, In general, the |
from copyrights. patents
good will, trade marks. formulas,
and the like. as well as from min.
eral properties. In the case Of roy
alties from mineral properties the
statute provides for certain allowable
depletion expense. depending upon
the nature Of the property and
other factors, and the amounts del
Quoted may not exceed the statu'
tory limitations.