Gail Perry answers your tax related questions...

I have three kids in public school, in 4th, 7th, and 9th grades. The "book rental" fees this August totaled $629.29. This does not include cafeteria fees, gym clothes, yearbooks, or other optional things. This is a fee we MUST pay to attend public school. I have lived in two other states where taxes paid for this stuff. Is this not a tax? Can I deduct this somehow? J.F. via e-mail

Some states pay for school books with property tax dollars. I used to live in a state where this occurred, and it was nice for the parents of school children. Sometimes there would be small lab fees or other costs, but for the most part, registering for school was not something requiring a trip to your friendly loan officer.  

In all the parts of Indiana with which I’m familiar, book rental fees are paid by the parents. Because the fee is not collected as a tax, the fee is not considered to be a tax. This seems strange, but each state is allowed to decide what it will do with the tax money collected - there is no law forcing states to pay for expenses like this out of the tax money.  

If you live in a state where property taxes pay for book rentals, garbage collection, leaf pick-up, tree trimming, and other types of expenses that relate to the overall improvement of the community, then those expenses are considered taxes. Taxes, as you know, are allowed as a deduction on your federal income tax return, if you are able to itemize your deductions.  

In a state where these services are only provided to citizens who pay for them, even if the citizens are required to pay for the services, such as in the case of the book rental fees, the services are not considered to be a tax and thus are not deductible on your tax return.  

My wife and I own two homes - one our primary house and the other is a vacation condominium that we own but let our children use. Are we allowed to deduct the mortgage interest for both of these homes? What about property taxes? Can we deduct the monthly fee we pay the condo association? K.E. via e-mail.

If you are entitled to itemize your deductions on your federal tax return, you can deduct the mortgage interest for both your primary residence and a second home. The property taxes on both of these homes are deductible as well.  

As for the condominium fee, that is a fee for services provided by the condominium association. Usually these services include lawn and garden upkeep, clean up of the grounds, office help, and other maintenance fees. These types of expenses generally do not qualify for a tax deduction.  

There are exceptions to this rule, and the exceptions occur if you use the condominium for business, or if the property is rental property and you collect taxable rental income on the property. In these cases, a portion of the condo fee would represent part of the cost of maintaining your business property and thus would be deductible.  

I had a loss on my home business last year and some of my expenses, such as home office expenses, were not allowed as deductions on my tax return. Do these expenses carry over to next year? L.O. via e-mail.  

You can carry your undeducted business expenses forward and try to apply the expenses to future income of your business. If the business continues to have a loss the IRS will want to reclassify the business as a hobby, and no losses will be allowed at all, not just the home office losses.  

In most cases, the IRS classifies businesses as hobbies if they show a loss for any three of five consecutive years. So get that business into the plus column so you can take advantage of the tax deductions that are out there!