This is the final installment of Tax Answers, in which members of the Maryland Association of Certified Public Accountants answer readers' tax questions. The deadline for filing federal and state returns is midnight Monday. Automatic filing extensions, until Aug. 15, can be obtained by filing Form 4868 by the Monday deadline, but any estimated taxes due must be paid. You can ask the IRS for an installment plan on Form 9465; a new fee this year, $43, will be added to your first payment.
Q: I own rental residential property and last year made some repairs, including some plaster work and painting. In addition, I had to replace a furnace. Can I fully deduct these expenses on my '94 return?
A: You can immediately deduct expenses for repairs and maintenance of your rental property in the year they were incurred. Therefore, you can deduct the cost of painting and plaster work on your 1994 return. Improvements that are considered major replacements of portions of the property or that extend the useful life of the property must be capitalized and deducted over a period of years. Thus, the replacement furnace must be capitalized and depreciated over 27.5 years.
Q: Is Social Security disability income used in my calculation of the earned income credit?
A: Social Security benefits are treated as pension and not as earned income, according to the definitions in the instructions for the earned income credit.
The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.