Q: I have a vacation home that I rent out two months of the year and use myself for two months. The rental income is usually less than the rental expenses. But this year the rental income will be more than the rental expenses. The IRS directions are unclear as to whether I can carry over rental expenses to this year's income. I would appreciate your explanation.
L.A., Lawrenceville, N.J.
A: Here's the official explanation from the IRS on your situation: If a dwelling is used personally for the greater of (a) 14 days or (b) 10 percent of the total days that it is rented to others at fair rental price, the dwelling falls under Internal Revenue Code 280A. This rule limits expenses to the lesser of either the percentage of time used for rental versus personal, or the amount of rent that is received.
Any excess expenses are not deductible and may not be carried forward or back to any other years.
Q: I'm a single mom and a 22-year schoolteacher. In two more years I can retire with a pension of about $54,000 a year. Here's my retirement account background: Two annuities, now worth $243,000 and together earning around 5 percent; and a 403(b) account of $16,500 earning 1 percent, into which I contribute $1,125 monthly. I own some rental properties, but I have lost interest in being a landlady. I can own my personal home outright if I sell the rental property. One grown child still lives with me. Do you think I have enough to retire?
M.R., via e-mail
A: Determining whether you can retire is a function of your retirement needs, says John M. Blamphin, of the Annapolis, Md. financial-advice company, The Scarborough Group.
If a $54,000 pension covers most of your expenses in retirement, he suggests that you keep your portfolio very conservative. Why speed if you're early for work?
Clearly, equities should play a role to help counter the effects of inflation, but limit the exposure and risk of the stock market if you don't need the returns.
You also indicated that you don't enjoy being a landlady, which suggests to Mr. Blamphin that you shouldn't own rental property. Please note that if you have depreciated the property over the years, you'll have to pay ordinary income taxes on the total amount of depreciation when you sell it - also known as the recapture provision.
Without knowing what your expenses are, Blamphin says he cannot say with certainty whether or not you can retire comfortably. It does seem, though, that with a pension, rental property, and other savings, that you have a sound base to build upon.