If I pay someone else's property taxes, can I use it as a deduction on my income tax return?
According to page 107 of the instructions for schedule A for form 1040 : Include taxes (state, local, or foreign) paid on real estate you own that was not used for business. ... If you want to make a business out of her property and be her agent in the management, you might be able to work with an accountant on this, but it won't be a valid personal deduction. To make matters worse, if you pay the property tax your mother in law can't take the deduction either. You may be better off paying rent and having her handle the property correctly, as a rental. You cannot deduct. Even if you could, unless you also hold the mortgage, it's unlikely that you would have sufficient deductions to exceed the standard deduction for a married couple.
Yes. The S-Corp can deduct up to the amount it actually incurred in expenses. If your actual expenses to build the carport were $1000, then the $1000 would be deductible, and your business should be able to show $1000 in receipts or inventory changes. Note you cannot deduct beyond your actual expenses even if you would normally charge more. For example, suppose you invoiced the non-profit $2000 for the carport, and once the bill was paid you turned around and donated the $2000 back to the non-profit. In that case you would be deducting $1000 for your cost + $2000 donation for a total of $3000. But, you also would have $2000 in income so in the end you would end up with a $1000 loss which is exactly what your expenses were to begin with. It would probably be a good idea to be able to explain why you did this for free. If somehow you personally benefit from it then it could possibly be considered income to you, similar to if you bought a TV for your home with company funds. It would probably be cleaner from an accounting perspective if you followed through as described above- invoice the non-profit and then donate the payment back to them. Though not necessary, it could lesson any doubt about your motives. @Pete B.'s answer is good, but there's an important note to consider for tax purposes.  It's too large for a comment, so I'm adding it as an answer. And that is: you cannot claim the property as a rental property under certain conditions.  This affects things like claiming mortgage interest (which you don't have), and depreciation in value (which a rental is allowed). See IRS topic 415 for details, but I've included an important excerpt below with emphasis added: If you rent a dwelling unit to others that you also use as a residence, limitations may apply to the rental expenses you can deduct. You're considered to use a dwelling unit as a residence if you use it for personal purposes during the tax year for more than the greater of:  ...   A day of personal use of a dwelling unit is any day that it's used by: Talk to a tax accountant to better understand the ramifications of this, but it's worth noting that you can't just rent it to her for a paltry sum and be able to take tax advantages from this arrangement. I am not a tax accountant and the caveats about taking tax advice from random people on the internet stand. I have, however, had partial payment as in specie benefit in the past so have a good idea of how this is taxed. The chickens are taxed as in specie benefits (supposing you classify the chickens as beneficial) at the same rate as any other payment. That the chickens died soon after has no effect unless it was for a reason that meant that their value was lower at the time that you received them than was accounted for for tax reasons. If their value at that time was less than reported you can write down the value and receive a tax rebate for the amount of tax on that write down. To expand a little on what littleadv said, you can only deduct what something cost you. Even if you had done volunteer work for a charity as a sole prop you could only deduct your actual costs. If you paid an employee to do charity work or to learn something related to the business that would be deductible as a normal business expense.  Some common sense would show that if you could deduct something that didn't cost you anything (your time) you could deduct away all of your income and avoid paying taxes altogether. Back to your more nuanced question could 2 businesses you own bill each other for services? Yes, but you will still have to pay taxes for money earned under each of them. You will also need to be careful that the IRS does not construe the transactions as being done solely to lower your tax bill. If it's in your name and you don't live there, there's a number of issues. If you charge her rent, it needs to be at fair value to treat it as a rental property.  If she lives there for the next 20 years, it will (or we hope) gain value. If she passes while it's in her name you get to step up the basis, and avoid tax. If in your name , the gain would be taxable. "http://www.irs.gov/taxtopics/tc503.html says you can deduct ""Any prior year's state or local income tax you paid during the year."" So I would say as long as you have good records, you can deduct the excess refund you had to pay back in the year in which you paid it. Whether or not your return was amended shouldn't affect whether or not it is deductible." I don't believe you can do that. From the IRS: Finally, certain types of property are specifically excluded from Section 1031 treatment. Section 1031 does not apply to exchanges of: I highlighted the relevant items for emphasis. My basic rule of thumb is that if the the bill come from a government office of taxation, and that if you fail to pay the amount they can put a tax lien on the property it is a tax. for you the complication is in Pub530: Assessments for local benefits.    You cannot deduct amounts you pay for local benefits that tend to increase the value of your property.   Local benefits include the construction of streets, sidewalks, or   water and sewer systems. You must add these amounts to the basis of   your property.  You can, however, deduct assessments (or taxes) for   local benefits if they are for maintenance, repair, or interest   charges related to those benefits. An example is a charge to repair an   existing sidewalk and any interest included in that charge.  If only a   part of the assessment is for maintenance, repair, or interest   charges, you must be able to show the amount of that part to claim the   deduction. If you cannot show what part of the assessment is for   maintenance, repair, or interest charges, you cannot deduct any of it. An assessment for a local benefit may be listed as an item in your   real estate tax bill. If so, use the rules in this section to find how   much of it, if any, you can deduct. I have never seen a tax bill that said this amount is for new streets, and the rest i for things the IRS says you can deduct. The issue is that if the Center City tax bill is a separate line or a separate bill then does it count. I would go back to the first line of the quote from Pub 530: You cannot deduct amounts you pay for local benefits that tend to   increase the value of your property. Then I would look at the quote from the CCD web site: The Center City District (CCD) is a business improvement district. Our   mission is to keep Philadelphia's downtown, called Center City, clean,   safe, beautiful and fun. We provide security, cleaning and promotional   services that supplement, but do not replace, basic services provided   by the City of Philadelphia and the fundamental responsibilities of   property owners. CCD also makes physical improvements to the downtown, installing and maintaining lighting, > signs, banners, trees and landscape elements.  and later on the same page: CCD directly bills and collects mandatory payments from properties in   the district. CCD also receives voluntary contributions from the   owners of tax-exempt properties that benefit from our services. The issues is that it is a business improvement district (BID), and you aren't a business: I did find this document from the city of Philadelphia explain how to establish a BID: If the nature of the BID is such that organizers wish to include   residential properties within the district and make these properties   subject to the assessment, it may make sense to assess these   properties at a lower level than a commercial property, both because   BID services and benefits are business-focused, and because   owner-occupants often cannot treat NID assessments as tax-deductible   business expenses, like commercial owners do. Care must be taken to   ensure that the difference in commercial and residential assessment   rates is equitable, and complies with the requirements of the CEIA. from the same document: Funds for BID programs and services are generated from a special   assessment paid by the benefited property owners directly to the   organization that manages the BID’s activities. (Note: many leases   have a clause that allows property owners to pass the BID assessment   on to their tenants.) Because they are authorized by the City of   Philadelphia, the assessment levied by the BID becomes a legal   obligation of the property owner and failure to pay can result in the   filing of a lien. I have seen discussion that some BIDS can accept tax deductible donations. This means if a person itemizes they can deduct the donation. I would then feel comfortable deducting the tax because: If you can't deduct it that would mean the only people who can't deduct it are home owners.  So deduct it. (keep in mind I am not a tax professional) Very simple. If it wasn't rented, it's deductible as a schedule A home mortgage interest. If it was rented, you go into Schedule E land, still a deduction along with any/every expense incurred. If you ended at your second paragraph, no. It's simply a refund of your own money. Same as any time I get any cash back, whether due to a credit card reward program or price match.  But. Your 4th paragraph changes this. Yes, you owe tax, as it's clearly not your own money coming back. Even barter income is taxable.  Per the new comments appearing, this is not a case of bartering. I cited bartering as an understandable example of when there's no cash and yet, tax is owed. In this situation, value is received, and it counts as income similar to the barter situations.  Just because the value isn't in cash doesn't negate the tax due. I'd rhetorically ask how OP pays his rent/mortgage, utilities, cell phone bill, etc. The answer is simple, non-traditional income, as OP puts it, has a tax due. For stocks, bonds, ETF funds and so on - Taxed only on realised gain and losses are deductible from the gain and not from company's income. Corporate tax is calculated only after all expenses have been deducted. Not the other way around. Real estate expenses can be deducted because of repairs and maintenance.  In general all expenses related to the operation of the business can be deducted. But you cannot use expenses as willy nilly, as you assume. You cannot deduct your subscription to Playboy as an expense. Doing it is illegal and if caught, the tours to church will increase exponentially. VAT is only paid if you claim VAT on your invoices. Your situation seems quite complicated. I would suggest, get an accountant pronto. There are nuances in your situation, which an accountant only can understand and help. This will be a complex issue and you will need to sit down with a professional to work through the issues: When the house was put up for rent the initial year tax forms should have required that the value of the house/property be calculated. This number was then used for depreciation of the house. This was made more complex based on any capital improvements. If the house wasn't the first he owned, then capital gains might have been rolled over from previous houses which adds a layer of complexity.  Any capital improvements while the house was a rental will also have to be resolved because those were also depreciated since they were placed in service. The deprecation will be recaptured and will be a part of the calculation. You have nowhere near enough info to make a calculation at this time. If your deductions are higher than the standard deduction, you will be able to subtract property taxes from your income. In your example, that means that taxes are computed based on $95,000. In 2011, the standard deduction varies between $5,800 (single filer) and $11,600 (married filing jointly). Tax credits are subtracted from your tax obligation. The most common tax credit for most people is student loan interest. If you pay $500 in student loan interest, that sum is subtracted from your tax bill. "Can't vouch for LA, but property typically is taxed at either the appraised value, the most recent purchase price (""if it wasn't worth that much, you wouldn't have paid that much""), or some combination of the two (usually highest of the two, to prevent ""$1 and other goods and services"" from lowering the tax to zero). You have now explicitly paid a total of $125k for the property; the fact that you bought it in two stages shouldn't be relevant. But ""should"" and law are only tangentially connected. I'd recommend asking a tax accountant who know your local practices, unless someone here can give you an authoritative answer." "You will need to see a tax expert. Your edited question includes the line For the short term, we will be ""renting"" it to my wife's grandmother at a deep discount. According to the instructions for schedule E If you rented out a dwelling unit that you also used for personal   purposes during the year, you may not be able to deduct all the   expenses for the rental part. “Dwelling unit” (unit) means a house,   apartment, condominium, or similar property. For each property listed on line 1a, report the number of days in the   year each property was rented at fair rental value and the number of   days of personal use. A day of personal use is any day, or part of a day, that the unit was   used by: I have no idea how this will work for Schedule C."