Does anyone know if home staging costs can be added to basis? I spent about $2800 on staging my flip and I'm wondering if that counts as a selling expense or can be capitalized somehow.

Another expense to consider - property taxes during the renovation period. Unlike loan interest and utilities which can potentially be capitalized, property taxes are generally deductible on Schedule A (if you itemize) rather than being added to basis. This is true even during the renovation period. Also, make sure you're separating any personal use from the renovation timeline. If you stayed in the property at any point during renovations, you'll need to allocate expenses accordingly. The IRS is pretty strict about this - only expenses incurred while the property was held purely for investment/sale purposes can be capitalized. One last tip: keep photos documenting the before/during/after condition of the property. This helps support your position that certain expenses were truly improvements rather than just repairs or maintenance.

One important thing nobody's mentioned - if you take 529 distributions for your mortgage, you CANNOT also claim those same housing expenses for other education tax benefits like the Lifetime Learning Credit. That would be double-dipping and is definitely not allowed. Make sure you're maximizing your overall tax benefit by figuring out which approach saves you more in your specific situation!

Great point about not double-dipping with other education tax benefits! This is something I actually learned the hard way when my tax preparer caught it during review. I'd been planning to use 529 funds for my mortgage AND claim the Lifetime Learning Credit for my tuition, but you have to choose one path or the other for any overlapping expenses. In my case, the 529 withdrawal ended up being more beneficial since I could cover a larger portion of my housing costs tax-free, rather than getting a smaller credit. For anyone in this situation, I'd recommend running the numbers both ways before deciding. Sometimes the education credits might actually save you more money than the tax-free 529 withdrawal, especially if you're in a lower tax bracket. It really depends on your specific income level and how much you're planning to withdraw from the 529. Also worth noting - you can still use 529 funds for some expenses (like housing) and claim education credits for others (like tuition and fees), as long as you're not double-counting any single expense. Just keep very clear records of which expenses you're applying to which tax benefit!

My dad always uses TaxAct and says there's a specific section for US Treasury interest that will automatically make it state tax exempt. I think most software has this but you gotta make sure you enter it in the right spot and don't just lump it in with regular interest.

Just want to share that I made a mistake with this exact thing last year - entered my I-Bond interest in Box 1 of my state return and ended up paying state tax on it when I shouldn't have!!! Found out later that Treasury interest is state tax exempt. Called my state tax dept and had to file an amended return to get that money back. Don't make my mistake!!

Has anyone used the simplified square footage method for calculating expenses? My property is 1800 sq ft and I'm renting just one room that's about (300 sq ft) to a friend. Not sure if I should count hallways and bathrooms in the rental portion?

For your situation with the inherited Colorado property, you'll definitely need to handle depreciation, but there are a few important considerations since it's inherited property. Your depreciable basis will be the fair market value at the time you inherited it (stepped-up basis), not what the previous owner paid. Since you're only renting one bedroom, you'll calculate the percentage that room represents of the total property (including reasonable allocation of common areas your tenant uses like kitchen, bathroom, hallways). Keep detailed records of your square footage calculations. One thing to watch out for - since you're keeping other rooms vacant for personal use when you visit, make sure you're not claiming any expenses for those areas. Only the portion actually available for rent can be depreciated and have expenses allocated to it. Also, don't forget you'll likely need to file a Colorado non-resident tax return for the rental income, in addition to reporting it on your Minnesota return. Colorado requires non-residents to file if they have any Colorado-source income, which rental income definitely qualifies as.

I just take a picture of mixed receipts immediately and mark them up digitally using my phone's markup tools. Circle business items in red, add up the subtotal right on the image, and calculate the proportional tax. Then save to a tax folder in my cloud storage. My accountant said the IRS doesn't require original paper receipts anymore - digital copies are acceptable as long as they're legible and you can prove the expense was for business.

Great question! I've been dealing with this exact same issue as a freelance consultant. Here's what I've learned works best: For mixed receipts, definitely keep them - just be methodical about marking them up. I use a simple system: I circle all business items in blue ink and write "BIZ" next to each one, then total up just those items at the bottom of the receipt. This makes it crystal clear what portion was for business. For the sales tax calculation, the proportional method is totally acceptable. If your business items were $30 out of a $60 total purchase, then you can claim 50% of the sales tax ($6.43 out of your $12.85 example). The IRS just wants to see that you have a reasonable, consistent method. One tip that's saved me time: I do this markup immediately while I'm still in the parking lot or as soon as I get home. Trying to remember what was business vs personal weeks later is nearly impossible, especially for generic items like batteries or folders. Your spreadsheet approach sounds solid - just make sure you're only entering the business portion of each receipt, including the calculated business portion of sales tax. Keep those marked-up receipts organized by month in case you need them later!