What do you think of this?

I know someone here locally who owns a few rentals. He told me anytime he does any kind of work on his own personal house, he pretends it's for one of the rentals instead and claims it as a repair or improvement deduction on his taxes.

I am not doing this personally, nor do I plan to.

I wasn't saying that I was shocked that someone was doing that...it just never occurred to me personally to do it (for myself). And he recommended that I start doing it...

yes do it all the time. do it for gas tooo. I'm such a bad boy I know.

Seriously there isn't one LL out there who hasn't done this-- either gas IRS allowances or using things from a fix up on your own residence. Same with claiming an office expense-- com"on!!!!!!! you know like stamps-- suppose to be for business or computer supplies????

Oh myob, tisk tisk.

That's nothing compared to what junkies do!

When I heard it I just wondered "is this something landlord except me is doing"? But I didn't want to start doing it because I knew doing that would make me uneasy, and it wouldn't be worth it.

I have "reused" leftover nails and small things claimed for rentals on my own home, as Lisa says, but I don't think that's the same as what this person was doing. And those nails, etc. were all bought and used on the rentals, there were just some leftovers.

What do I think of this?

I think if you are talking about repairs / improvements, you mean something much more significant than a couple of leftover nails.

I also think there is a name for it - tax evasion.

Not only would I not do it, but I would not want to hire someone who is OK with falsifying receipts. If they are willing to lie to the IRS & take that risk, how much easier is it to lie to me and cheat me?!

so none of you has ever gotten cash for pro rated rent or first months rent and put it in your pocket (AKA never claimed income)?

How about this-- roofer overestimates shingles by 2 squares and 2 boxes of nails and 2 rolls of tar paper. You pay for job (materials) and when done roofer and buddies return overage. they don't have receipts but get the gift cards-- then walk out into parking lot and sell those cards for cash .50 on the dollar?

I have separate CCards for personal n business HD n lowes. Also separate business and personal visa cards. So it is easy to keep apart. It drives me nuts when people talk about being aggressive on reporting, or evading their taxes. There are problems w/ government (won't go THERE) but how do people think public infrastructure and safety, etc. get funded?. How do so many people think it is ok to hide income and under report? I'd say more than 50% of the contractors and people I come across hide income. Like the possibility of cameras being in tenants apartments, I figure the data available for scrutiny will bear witness to cheats some day. Case in point is the freakanomics piece about teachers adjusting student test scores (the data caught them). Also why I pull permits. It is impossible to own rentals and not do work that requires a permit.

I report all cash. Otherwise I wouldn't remember who paid their rent and when. I have a "Cash Account" set up in Quicken and report it there. Even when I don't USE the cash, as in the time I gave a leather purse I didn't use much to my DIL and she found 500 bucks inside - from a partial cash rent purchase that I forgot to deposit. I REPORTED it, but didn't deposit it!

Now that I have MileIQ, I find I was UNDER-REPORTING my mileage.

I buy ice melt in bulk. We divy it up into smallish containers and distribute them as needed to the properties throughout the winter. Some of these containers always end up in my personal garage !!

I think there is some gray areas. Example, I bought a Stihl weed whacker for the rentals back in the day when I did all the lawn work myself. Expensed it same year. 3 years later, I started hiring out lawn care, and I didn't see any reason to sell the week whacker, so I use it now at my personal residence. Since I wasn't depreciating it, I saw not reason to amend my tax return. It was used for rentals and expensed the same year as purchased.

Is there some IRS rule that says what I should do it that case? Maybe. Did I do wrong? Maybe.

So while I don't sit in judgment on what your friend is saying, I will say there is a difference between what I did and when someone is advocating doing repetitively and knowingly up front to cheat on taxes. If I had gone to the store to buy that weed whacker with no intention of ever touching a blade of grass at a rental, that's a little different than my scenario.

I have a friend who is an IRS auditor. She has some discretion in situations. Most times, they are looking for egregious violations, like taking all rents in cash and not declaring some or all of the income. I haven't run my particular scenario past her, but my gut feeling is she wouldn't be interested in nailing me on a $400 weed whacker that was used in the business for 3 years.

Is that a morally correct model for her to follow? I don't know. That's for her to decide. I don't judge her or your friend.

Here's a key phrase... "He told me anytime he does any kind of work on his own personal house, he pretends it's for one of the rentals instead"

In criminal law, INTENT is a major component in determining not only what a person is charged with, but also it is considered in the penalty phase if the person is found guilty. Your friend has clearly expressed his intention is to cheat on his taxes and is advising others to do the same. I think this would go badly with him if he were ever caught. Bragging about breaking the law intentionally is a level of stupidity in and of itself. So I don't judge your friend morally, but I question his level of intelligence and would also be concerned with integrity.

There's a difference between not knowing what to do in a relatively minor situation vs. knowingly violating the law each and every time with full intent and thousands of dollars on the line.

Sad to say, but reporting expenses that truly don't apply to the rentals is probably small potatoes compared to the number who don't even report ANY rental property income. Still, we do need to report expenses honestly, of course.

And for me, pulling permits goes in that same categories as reporting expenses properly. Great sleep insurance.

"advocating doing repetitively and knowingly up front to cheat on taxes."

I think it's impossible to be 100% accurate on your expenses. The other day I went grocery shopping, swung by HD to pick up a couple parts for rental repairs, dropped off some books at the library, and picked up some rental mail at our PO box. How would you apportion that mileage?? You just have to do your best.