The Unbelievable Story of Chesty Love

Plus: How the Rich Save on Taxes

Hi there,

We’re now fully in the last quarter of 2023. Where does the time go?! Without further ado, here’s our top 3 insights curated just for you.

1) Sweet Sweet Section 121 Bonus. 

If you don’t have IRC code sections memorized, Section 121 is the portion of the code that allows a homeowner to exclude a portion of their capital gain on the sale of their primary residence ($250k filing single/$500k filing joint).

Let’s say you rent out your basement as an Airbnb, so you depreciate the space and claim the related income and expenses. In a situation where the Airbnb was a separate investment property, you’re paying depreciation recapture when you sell along with capital gain taxes.

But in this instance - since it’s part of your primary residence, you don’t have to exclude the Airbnb portion from your capital gain exclusion. You will still have to do depreciation recapture, but up-to-$500k (if married filing joint and meet the exclusion rules) the capital gain exclusion still stands regardless of the fact that you rented out part of your home.

Honestly, THIS is a pretty cool tax benefit of home ownership that I’ve yet to see discussed on TikTok.

For once I actually am not using this phrase sarcastically. It’s through art, and is a form of tax fraud.

Maybe you’ve heard of it but it goes something like this. You buy a piece of art for $100 (let’s say a banana stapled to a piece of plywood), then your art appraiser buddy comes in and values that piece of art at $100,000 a year later. You, being a generous benefactor, donate your piece of art to the local museum. And then you write off $100,000 on your taxes as a charitable donation.

Rich People Protecting that $$$

The IRS isn’t dumb and knows that people are doing this and are warning wealthy taxpayers to not fall for these schemes. The IRS is also actively investigating promoters of these schemes. To date, audits of this type of tax fraud have resulted in $5M in tax revenue.

3) Chesty Love Tax Deduction.

Chesty Love was a spicy dancer who in the 90s took the IRS to court over some chest enhancements she was depreciating for her work - and won.

Normally - writing off for business purposes any type of physical enhancement is nearly impossible to do since you also usually receive personal benefit from it (e.g. - if I get Botox, the Botox is there still even when I’m not working).

What makes Chesty Love’s situation unique in my opinion and enabled her to take the deduction were several specific facts about the case:

  1. She was able to show that chest enhancement was so out of the ordinary, she was not able to get personal benefit from it and it actually ruined her personal appearance. For context, her enhancements were 56FF and each weighed about 10lbs, and claims they caused actual harm in her personal life due to ridicule she would receive in everyday life.

  2. She was able to show after the enhancement, the amount she was able to make from performing in shows doubled.

Because of this, the cost of the surgical enhancement was allowed as a business deduction. As you can see though, this is a pretty extreme case and the enhancements had to be considered so “freakish” (yes that word was used in the summary opinion) as to prove she received no personal benefit from it in order to qualify as a business expense.