What about the "related purchases" rule though? I've heard the IRS sometimes combines items that go together if they're purchased close in time. Wouldn't they see the computer and monitor as one unit?

The "related purchases" concern is valid, but it depends on the specific facts and circumstances. If items function independently, they're typically treated as separate. A monitor can work with many different computers, so it's reasonable to treat them as separate assets. Just document that they were purchased separately and have different useful lives. The monitor might last through several computer upgrades. Also, if you purchased from different vendors or on different dates, that strengthens your case for treating them as separate items.

That's because different tax strategies work better for different business situations. Section 179 is great if you're profitable and want to reduce taxable income now. Depreciation might be better if you expect higher profits in future years. De minimis is just an administrative convenience for smaller purchases.

I'm not sure a 1031 exchange would work in my situation. Don't those only apply when you're selling one investment property and buying another? I'm not selling my home, just temporarily renting it out. And I'm not buying the hotel, just staying there temporarily.

You're absolutely right, and I apologize for the confusion. A 1031 exchange wouldn't apply in your situation since you're not selling property. It requires a sale of one investment property and purchase of another "like-kind" property. What might be more applicable in your case is to carefully track all legitimate rental expenses to offset as much of the income as possible - property tax portions, insurance, maintenance, depreciation during the rental period, etc. Those are definitely deductible against your rental income.

Careful with that approach. The IRS can recharacterize arrangements if they appear to be structured mainly to avoid taxes. If the market rate is $2,000 but you charge $1,000 and call the rest a "gift," that could potentially raise flags.

Thanks for bringing that up! My cousin only made about $15,200 from his part-time job last year, so I don't think the income limits will be an issue. The refundable portion is great news though - that extra $1,000 would help him a lot with next semester's expenses! Question though - does he need to be claimed as my dependent to get the AOTC, or can he file independently and claim it himself?

No, he doesn't need to be your dependent to claim the AOTC himself. If he's not a dependent on anyone's return, he can claim his own AOTC on his tax return based on qualified education expenses that he paid. However, if someone else (like his parents) claims him as a dependent, then they would be the ones eligible to claim the AOTC based on education expenses they paid. The student can't claim education credits for expenses that were paid by others or covered by tax-free scholarships. In your case, if he's filing his own return and paid his own education expenses (or took out loans in his name), he should claim the credit himself. If his parents paid some expenses, they might be able to claim a portion of the credit if they claim him as a dependent.

Wait really?? So if my scholarship was $5000 and I had $4000 in tuition and $3000 in room/board, I could choose to apply the scholarship to room/board first to maximize my qualified expenses for AOTC?

Thanks for that info - I hadn't heard about the moratorium! Do you know if that affects claims that have already been submitted or just new ones going forward?

The moratorium primarily affects new claims submitted after September 14, 2023. Claims already in the system before that date should continue to be processed, though possibly with additional scrutiny. The IRS has also stated they're prioritizing processing the backlog of previously submitted claims, so in some ways, if you already have a claim in the system, this might actually be good news as they focus resources on clearing existing claims before accepting new ones. If you haven't submitted yet, I'd recommend getting your documentation very thoroughly organized before filing.

What software did you use? I'm considering doing this myself but worried about making mistakes like this.

I switched to FreeTaxUSA after having similar problems with TurboTax. WAY better for rental properties and it handles Schedule E much more intuitively. Plus it's cheaper.

That's not accurate - reinvesting profits doesn't make the income tax-free. You still need to report all income from your rental. The renovations and furniture aren't fully deductible in the year you buy them either - they need to be depreciated over several years (typically 5-7 years for furniture and 27.5 years for home improvements). You can deduct normal operating expenses like cleaning, utilities, and supplies in full for the current year, but capital improvements have to be depreciated according to IRS schedules. You're still taxed on your net income even if you're using that money to improve the property.