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Happy Tuesday! The IRS isn’t exactly known for its generosity. But every now and then, the tax code has a few surprises up its sleeve that actually work in your favor.
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This week, we’re looking at tax strategies that seem almost too good to be true. And just to remind everyone that the IRS isn’t that generous, we’re throwing in a cautionary tale about a couple who got a little too creative with their deductions.
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This week’s lineup:
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🏘️ The IRS has a few generous rules for rental property owners. Yes, you read that correctly.
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🔑 The IRS won’t pay your mortgage, but it might give you a few tax breaks.
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📉 Your worst-performing investment might still have one redeeming quality.
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🔥 This couple proves why you shouldn’t confuse your tax return with your personal shopping list.
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Tax Strategies
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🏘️ Rental property tax deductions that feel illegal (but aren’t)
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The Quick & Bristly: Renting your home for up to 14 days could mean tax-free rental income. For long-term rentals, you may qualify for deductions on everyday expenses, accelerated depreciation, and even costs associated with renting out part of your home.
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Renting out your home sounds like the kind of thing the IRS would want a piece of. Usually, it takes its share. But sometimes, strangely enough, it doesn’t.
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Whether you’re renting your home for a big weekend or managing an investment property, there are some surprisingly generous tax deductions. And yes, they’re all perfectly legal.
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Cash in on the 14-day rule
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Under Section 280A(g), you can rent your residence for fewer than 15 days per calendar year without reporting that rental income on your federal tax return. It’s called the Augusta Rule, named after Augusta, Georgia, and the homeowners who rented out their houses during the Masters golf tournament.
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It gets even better. There’s no dollar cap. The rule counts days, not dollars. So, if a festival comes to town and you rent your house out for $500 for 10 nights, that’s $5,000 you don’t have to report as rental income. Not a bad take for temporarily moving back in with your parents.
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But (you guessed it) there are strings attached. The property must be a home you use personally, and you have to charge a fair rental price. You also can’t deduct rental expenses associated with those days. And before you start listing your house on Airbnb for the summer, note that normal reporting rules apply if you rent it out for 15 days or more.
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Don’t overlook these common deductions
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Now, if longer-term rentals are more your speed, you can lower rental income taxes by deducting ordinary and necessary expenses. Think advertising, insurance, property management fees, utilities, legal fees, and maintenance. Those bills can be painful, but they hurt a little less when they reduce taxable rental income.
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Mortgage interest and real estate taxes may also qualify, but your mortgage principal? Nice try. Paying back what you borrowed doesn’t count as a deduction.
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Repairs can also be deducted, but there’s a difference between a repair and an improvement. Fixing a broken faucet is a deductible repair. Remodeling a ‘90s-era kitchen to bring it into the 21st century is an improvement with costs that are recovered over time.
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And those are just the obvious deductions. To get some of the bigger tax breaks, you need to look beyond your everyday expenses.
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➡️ See how your rental property could unlock even more tax savings
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Tax Strategies
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🔑 Homeowner tax deductions that seem too good to be true
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The Quick & Bristly: Homeowners who itemize may qualify for deductions on mortgage interest, property taxes, and HELOC interest. Eligible self-employed homeowners may also deduct home office expenses, while those selling their main home could exclude a large portion of gains.
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Owning your own home is expensive. Mortgage, insurance, property taxes, repairs… are you missing the old rental days with your landlord yet?
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Fortunately, homeowner tax deductions can help curb some of these costs. Now, don’t start planning a full remodel or a much-needed tropical vacation with that windfall of extra cash you’re picturing right now. Not every cost qualifies, and some tax breaks for homeowners require itemizing instead of taking the standard deduction.
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There may be relief in your mortgage payment
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Your mortgage is one of your biggest expenses. Surely some of it deserves a tax break? The good news is that it does. If you itemize, interest on a qualifying mortgage for your primary or second home may be deductible.
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If you took your loan out after December 15, 2017, the limit covers interest on up to $750,000 of debt (or $375,000 if you’re married filing separately). For older loans, the limit is up to $1 million (or $500,000 if you’re married filing separately).
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In order to deduct your interest, the mortgage must be secured by the home, and the funds must have been used to buy, build, or substantially improve it. Paid mortgage points may also be deductible, either in the year they were paid or over the life of the loan.
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This doesn’t mean your entire mortgage payment is deductible. Repaying money you borrowed isn’t a tax write-off, so the principal doesn’t count.
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Add in some SALT
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Opening the mailbox and finding a property tax bill is one way to ruin your day. And while you can’t completely get rid of these taxes, you can include them in the SALT deduction (a cute little acronym that means state and local taxes).
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You’ll have to itemize for this one, too. When you do, property taxes can be combined with state and local income taxes or sales taxes. For 2026, the combined limit is $40,400 (or $20,200 if married filing separately).
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That limit starts shrinking if your modified adjusted gross income exceeds $505,000 (or $252,500 if married filing separately). But it won’t fall below $10,000 (or $5,000 separately), so you won’t be completely iced out at higher income levels.
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It’s no surprise that not everything qualifies. Assessments for improvements like new sidewalks or sewer lines aren’t going to make the cut.
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And this is only the beginning.
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➡️ Find out how you can cash in if you borrow against your home, work in it, or sell it
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Tax Strategies
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📉 How to turn losing investments into a tax win
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The Quick & Bristly: Tax-loss harvesting lets you use investment losses to offset capital gains, deduct up to $3,000 of excess losses against other income, and carry unused balances forward. But watch out for the wash-sale rule, which can delay or eliminate the tax benefit if you buy back too soon.
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You don’t buy a stock with the expectation that it will completely tank. But if it starts to nosedive, you might get a smaller tax bill as a consolation prize from the IRS.
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Your losers can cancel out your winners
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If you sell an investment for less than what you paid, you can (in some cases) use that capital loss to offset gains. This strategy is called tax-loss harvesting.
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Here’s a quick breakdown. If you made $10,000 selling one investment but lost $4,000 selling another, you may only have $6,000 in net capital gains left to tax.
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But there’s that key word: selling. You actually have to sell the stock. Watching it plummet is not only gut-wrenching, but it doesn’t count. This strategy is also reserved for taxable investment accounts, not losses inside IRAs or 401(k)s.
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The loss can still help even without gains
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If you had a bad year with no winners, your losing investments might still be good for something.
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You can generally deduct up to $3,000 against other income (or $1,500 for married filing separately) if capital losses exceed your gains. Anything left over can carry forward to future tax years.
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So, if you had an $8,000 net capital loss with no gains, you could potentially deduct $3,000 this year and carry forward the remaining $5,000. While not ideal, it makes losing a little less painful.
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Just don’t buy it back
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Now, what if you sell your losing stock, score the tax break, and then immediately buy it back? Sounds like a pretty solid plan until you realize the IRS already figured that one out. Under the wash-sale rule, your loss is disallowed if you buy the same or a substantially identical investment within 30 days before or after the sale.
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Let’s say you want to sell your Dunder Mifflin Paper Company stock at a loss on December 1 and buy it back on December 15. Congrats, you’ve managed to lose money and put your tax deduction on hold. And if you buy extra shares on November 15, you’ll hit the same roadblock. Even automatic reinvestments or purchases in other accounts can trigger the rule, too.
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Usually, the disallowed loss gets added to the cost basis of your replacement shares, so it postpones the deduction. But if you repurchase through an IRA, that loss may be gone for good.
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And remember, tax-loss harvesting can sometimes delay taxes rather than eliminate them. If you buy a different investment at a lower cost, you could face bigger taxable gains when you eventually sell.
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So before you sell, remember the wash-sale rule and check your calendar. One poorly timed purchase could completely derail your tax-saving strategy.
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Thursday, we go to work.
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The TaxStache Business Edition is built for owners and operators. Quick hits on entity structure, quarterly deadlines, deduction strategy and the IRS rule changes that actually affect your bottom line.
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Would you like to receive our Thursday Business Edition?
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Wacky Tax Tales
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🔥 The tiki torch tax fraud that went up in flames
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Image by Andres M.
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The Quick & Bristly: A California couple’s tax fraud scheme involved claiming personal purchases, vacations, and parties as business expenses. It ended in convictions, prison time for the husband, hefty fines, and the wife’s eventual disbarment.
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Brian and Denae Beland of El Dorado Hills, California, took creative tax strategies to a whole new (illegal) level. Their tax fraud scheme involved everything from tiki torches to European vacations. And while it’s hard to believe, the IRS just wasn’t convinced these were essential for business.
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Since when is a baby shower a business expense?
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Between 2011 and 2013, mortgage broker Brian earned over $1.1 million and claimed more than $800,000 in business expenses across those three years. His effective federal income tax rate was a whopping 2%.
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And forget about office supplies. This business apparently required a passport and a baby registry. The couple wrote off personal purchases including automated tiki torches, a California king-size bed, home gym flooring, birthday parties, and baby showers. Oh, and don’t forget about the “business trips” to Europe, Hawaii, and Cancun.
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Then the IRS crashed the party
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When the IRS began an audit, the couple claimed their business records had been shredded or lost. They even created spreadsheets disguising personal purchases as legitimate business expenses. Unfortunately for them, the IRS wasn’t so easily fooled.
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In 2016, investigators searched the couple’s home and discovered the “missing” records and receipts. Some were even sitting alongside letters about the very audit the couple was attempting to obstruct. Well, that’s subtle.
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That 2% tax rate came at a price
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After an eight-day trial, Brian was convicted of filing false tax returns and obstructing the audit. Denae was convicted of obstruction.
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In August 2023, Brian received 21 months in prison and a $30,000 fine. Denae received five years of supervised release and a $25,000 fine. And the consequences didn’t end there. Denae was suspended from practicing law and officially disbarred in August 2026.
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The takeaway here is that plenty of deductions are perfectly legal. But fraudulent tax deductions don’t become legitimate just because you add them to a spreadsheet. Live your best life. Just don’t expect the IRS to pay for it.
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The quick (and slightly prickly) stories we didn’t have time to get to:
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