Enough Allowances, It’s So Confusing
Q. I know you get a lot of questions about this, but I think I may have not been allowing myself the number of allowances that I am qualified to receive. I am 33, single, have 2 homes in a separate state, both are rented. Should I be able to claim an allowance of 3, for tax and interest and depreciation for those homes?
A. The question of the “right” number of allowances to claim is a tough one. For most people, it simply involves completing the Form W-4 as correctly as possible using any the necessary worksheets on the back side of the form. For others, because of some extra factors that are not handled in the W-4, finding that number is an interesting problem. In your case, the two homes in other states that are rentals are most likely considered a passive investment meaning you probably cannot fully deduct any losses that occur. The best way for you to determine how many allowances to claim is to sit down with your tax advisor or CPA and go through last year’s tax situation.
On a side note, make sure you have mentioned the 2 rental homes. By maintaining homes in other states from your resident state, you likely will need to complete a tax form for those states even if you have no actual tax liability. Often, sales tax is required on the rental price of your homes along with the normal property taxes. Make sure you check with the taxing jurisdictions where your homes are located. You don’t want to be caught by surprise with sales taxes.
