The Waterbury Democrat., 1944-02-01
YOUR FEDERAL INCOME TAX
INCOME FROM RENTS AND
 ROYALTIES

Many taxpayers derive income from rents and royalties. Such in- come is shown in item of the re- turn Form 1040. eff you have this type of income you cannot use short Form 1040A.) Only the net income -or 1oss-is shown in item 2: that is, the difference between 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 C(D of the return.
 The 'kind of property might be indicated as farm, dwelling. store building, or the like. The charge able expenses are shown under three headings, as (a) depreciation allow able, (b) repairs, and Co other ex- penses. Where depreciation is claim ed, further explanation is required in Schedule C(2) Explanation of Deduction for Depreciation Claim ed). Repairs and other expenses must also be explained in Sched- ule C(2).
 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 replacements 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 re- serve. Only the cost of incidental repairs which neither materially add to the value of the property nor appreciably prolong it's life. but serve to keep it in an ordinary efficient operating condition, may be deducted as repair expense in Sched- ule 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 instance, are regarded as repairs, deductible as expenses in Schedule CD. The replacement of a roof or change in the heating plant, plumbing sys- tenn, or other major alteration. is regarded as in the nature of capi- tai expenditure and is not deducti- ble as repair expense in Schedule CO.
 Among "other expenses" deducti- ble in Schedule C(r 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 dwelling is partly rented and partly occupied by the taxpayer, only those expenses chargeable to the rented portion are deductible. In the case of 2-family dwelling, fer instance, one-half of which is oc- cupied by the owner. ordinarily one-half of the depreciation allow able, 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.