Evening star., 1944-01-26
Your U. S. Income Tax
(This Is No. "a of a Series. J

Many taxpayers derive income
from rents and royalties. Such In
come is shown in item I of the re-
turn Form 1040. uf you have this
type OF income you cannot use short
Form lO40A) Only the net income
Or loss-is shown in item 7: that
Is, the difference between the total
amount received in revenue from the
property less the total amount of
the ordinary and necessary expenses
incurred. An explanation of income,
chargeable expenses, and the kind
OF property, must be shown in
Schedule CD Of the return.
The kind of property" might be
indicated as farm, dwelling, store
building or the like. The chargeable
expenses are shown under three
headings, as (a) depreciation allow
able, (b) repairs, and (c) other ex-
penses. Where depreciation is
claimed, further explanation is re-
quired in Schedule CO (Explana-
tion OF Deduction for Depreciation
Claimed. Repairs and other ex-
penses must also be explained in
Scheduled Co.
Distinction Is Made.
A distinction must be made be-
tween expenditures for maintenance
and repairs and expenditures for re-
placements, improvements and al
terations. 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 chargeable
to capital or the depreciation reserve.
Only the cost of incidental repairs
which neither materially add to the
value of the property nor appre-
ciably prolong its life, but serve to
keep it in an ordinary efficient oper-
ating condition, may be deducted as
repair expense in Schedule CD.
The distinction between what is
an improvement or an alteration
and what is repair is not always
clear, and has been the subject of
many rulings and decisions. The
cost of painting the outside of
house used for business purposes
(rentaD and the cost of painting
and papering the inside, for in
stance, are regarded as repairs, de-
ductible as expenses in Schedule G
%. The replacement of roof or
a change in the heating plant,
plumbing system or other major
alteration is regarded as in the ma
ture OF capital expenditure and is
not deductible as repair expense in
Schedule c %.
Other Costs Deductible.
Among "other expenses" deduct
ible in Schedule c Cd are such
items as the cost Of janitor service,
water service, fuel, fire insurance
and the like, as we'll as taxes and
interest expense. If taxes and in
terest are deducted az "other ex-
penses," they may not be deducted
under the separate items of taxes
and interest in the return.
Where dwelling is partly rented
and partly occupied by the tax
payer. only those expenses charge
able to the rented portion are de-
ductible In the case Of a two
family dwelling. for instance. one
half Of which is occupied by the
owner, ordinarily one-half of the
depreciation allowable. repairs and
other expenses, would be deductible
from the rent received.
Royalties are. in general, the
earnings from copyrights, patents,
good will, trademarks, formulas and
the like, as well as from mineral
properties. In the case of royalties
from mineral properties the statute
provides for certain allowable de-
pletion expense, depending upon the
nature of the property and other
factors, and the amounts deducted
may not exceed the statutory limi-
tations