IRS ADVISES TAXPAYERS IN REGARD TO COMMON MISTAKES IN DEDUCTING LEASE AND RENT PAYMENTS

In its continuing efforts to assist taxpayers in properly complying with U.S. income tax laws, the IRS recently issued a Fact Sheet relating to properly deducting rent and lease payments by a trade or business. The principal points noted by the IRS were:

• special rules and limitations apply to business use of the taxpayer's rented personal residence and leased automobiles;
  
• sometimes payments are listed as "rent" when in reality they are actually for the purchase of the property. A conditional sales contract generally exists when at least part of the payments are applied toward the purchase or entitle the taxpayer to acquire the property under advantageous terms. Such payments are not deductible as rent expense but qualify for depreciation expense over the useful life of the asset;
  
• taxpayers who are in the business of producing real property or tangible personal property for resale, or who purchase property for resale, may not be able to deduct rental and lease expenses but instead may have to capitalize them;
  
• if a taxpayer has both business and personal use of rented or leased property he or she may deduct only the amount used for business.
  

FS-2007-14, February 2007