I paid $775 in self employment taxes in 12/2021. These were taxes deferred from 2020. Can I deduct this amount on my 2021 return as a business expense?

[Kollistim1]

Some details: on my 2020 return, I was able to defer my self employment taxes.  I paid half if this deferral ($775) in December 2021.  Can I deduct this amount as a business expense on my 2021 return.  Note: I am still self employed.

[MinhT1 · Accepted solution]

No.

The deferred self-employment tax paid in 2021 is not deductible on your 2021 tax return.

[Kollistim1]

Can you explain why I can't deduct it on my 2021 tax return.  It was a tax I paid in 2021 and it had not been deducted in 2020.

[MinhT1 · Accepted solution]

Your 2020 self-employment tax is a tax liability for tax year 2020. You had to pay it for tax year 2020.  The deferment of half of the tax was only a payment facility for you. That tax was not deductible or deducted in 2020.

Federal tax payments are never deductible.

[Kollistim1]

I have another question:  I sold my rental property in February 2021.  I made some capital improvements in January 2021 -- new heating system, water filtration system.  During this time the property was vacant and not available for rent.  Where do I add these capital improvements to increase the basis of my rental.  Do I change the capital basis that was transferred automatically from my 2020 return?

[Vanessa A]

Yes, you would just increase the capital basis that was transferred from your 2020 return. 

[Kollistim1]

That seems to be the easiest way to do it.  Thank you. I also had some repair costs.  Can these be part of the expenses involved in selling the vacant rental property?  These are items such as cleaning, repairing the roof, painting the deck etc.   I am already deducting expenses such as commissions and other traditional closing costs such as attorney fees.  Can I also include repair costs as part of the costs associated with the sale of the property?

[PatriciaV · Accepted solution]

It depends on the status of your Rental Property while you made repairs before it was sold.

If the property was available to be rented while you made repairs (even if you had listed the property for sale), you would report repair cost under Rental Expenses.

However, if the property was not available to be rented (or you had no plans to rent it again), any costs for repairs or improvements that you incurred before you listed the property increase the basis of the property and should be entered as a separate Rental Asset (improvements). Again, no depreciation expense in the year of the sale.

Any repairs needed in order to close the sale may be included in Selling Expenses.

Additional info: IRS Pub 527 Residential Rental Property - Vacant Rental Property