The 8 craziest real estate write-offs tax pros have ever seen

Itemizing your deductions is a lot less common than it used to be, thanks to the tax overhaul President Donald Trump signed in 2017.

But rental property owners and home business entrepreneurs still have opportunities to take write-offs — and they often get very creative.

Accountants all have stories about enterprising property owners who devised their own cockeyed real estate deductions that, left unchecked, could have resulted in IRS audits or worse.

Got your own far-out idea for cutting your taxes? You’ll want to connect with a tax professional first — to avoid winding up in a Hall of Shame like this one.

1. When the accountant said, ‘I don’t!’

Cleveland-area CPA Elizabeth Dittrick admits that while she approved of the sentiment behind one client’s proposed travel deduction, she wasn’t about to say yes.

“There was a guy who had rental property and tried to deduct a limousine charge in the year he got married by claiming that he had taken his renters out for a night on the town, when I knew that it was for his wedding,” she says.

“I ended up refusing to sign the return.”

2. A security system with real bite

One Texas CPA had a client whose security expenses for his rental properties seemed a tad too high but wrote them off as the cost for installing automated systems at each location.

That is, until the IRS audited the landlord’s taxes.

“It turns out that his security expense was his dog — and all of the dog food and veterinarian expenses,” the CPA recalls.

As for those site-specific expenses? They were for taking the dog to the different properties.

3. Her tax return needed a reno

If you work from home, you’re allowed to deduct improvements to the office portion itself, while improvements elsewhere may be depreciated based on the percentage of home office use.

But one of Dallas CPA Ken Sibley’s clients almost stumbled big-time.

“The most troubling return was a lady that was self-employed who demanded that she get to deduct more than $30,000 she had paid in remodeling her home” says Sibley.

Story continues

“The only trouble was, the area that was remodeled did not include her actual home office.”

4. The case of the costly adoption

A 65-year-old Kissimmee, Florida, woman took such a liking to her 20-something student renter and handyman that she decided to adopt him — at least on her taxes.

The move enabled her to not claim his rent payments as income for three years.

When the IRS caught on, it slapped her with $7,000 in back taxes and penalties.

Ironically, because her new “nephew” had remodeled part of her home, she could have offset that expense against the rental income — and wound up in better shape than claiming him as a dependent.

5. Wholly unholy travel expenses

Dallas CPA Sibley remembers a new client and man of the cloth who sought a sinful tax break.

“The minister wanted to take travel and related costs incurred when the full family traveled the country looking for real estate investment property,” Sibley recalls.

“But none was ever found and none had been purchased for the past several years.”

6. ‘And if the fridge breaks, I’d starve!’

Ah, the old home security system ploy. We’ve seen legitimate home businesses try to claim their dogs and even cats as a security expense.

But the Hunter Group in Fair Lawn, New Jersey, once recalled a client who had an even more creative reason for trying to write off the cost of her home security.

“Rationale? If the client’s home was burglarized and she was killed, she could no longer pay taxes,” the CPA chuckled.

By that logic, we reckon she could write off food as well.

7. Too much baggage

Sometimes tax preparation can involve some off-the-books negotiation.

Don Meyer of the New Jersey Society of CPAs recalls when a manager and family member of a famous entertainer sought an immediate, full-price tax write-off on a $2 million office building they were thinking of buying.

“At one point in the drama, a suitcase with a very significant amount of cash appeared as incentive for the accountants to somehow ‘make it work,'” Meyer recalls.

So what happened?

“The suitcase full of money was refused, and the extravagant claim never made it onto the tax return — at least, not the one the accountants prepared before they resigned the account.”

8. They needed counseling, not a CPA

Elizabeth Dittrick recalls one particularly uncomfortable meeting with a married couple.

The property deduction was legitimate; it was the underlying asset that proved to be the problem.

“We were going over their tax information and the tax manager asked the gentleman, ‘Now what about the mortgage interest deduction for the condo in Utah?’” she recalls.

Unfortunately, the guy’s wife didn’t know about the condo in Utah — because that’s where he had set up his mistress.

“It was a ‘big oops’ moment,” Dittrick says. “There was this stony silence in the room. It was absolutely awful.”

How to save money (legitimately)

You don’t need to skirt the rules to reduce your tax burden or get a bigger refund.

Good tax software can hunt down all kinds of deductions you might not know about, and you can save even more money by picking it up early.

If that’s not enough to make a difference in your budget, you can always try some of these fundamental money-saving and money-making strategies:

• Land a better mortgage rate. Interest rates are historically low right now, but they may not stay that way for long. If you refinance, you may be able to save hundreds each month and thousands over the lifespan of your loan.

• Consolidate high interest debt. With interest rates as bad as 20% — or even worse — credit cards make it easy to fall into debt. Combining all of your balances into one loan with a much lower interest rate can help you save hundreds and free yourself from debt faster.

• Invest in a “fine” asset. Returns on fine art by the likes of Banksy and Andy Warhol have crushed the S&P 500 in recent years. That used to be an option only for the ultra rich, but with a new investing platform, you can invest in iconic artworks, too, just like Jeff Bezos and Bill Gates do.

• Turn pennies into a portfolio. Even if you don’t have much money to spare, you can still earn big returns from today’s runaway stock market. A popular app will help you invest your “spare change” from everyday purchases.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.