Question

48. LO.3 During the year (not a leap year), Anna rented her vacation home for 30 days, used it personally for 20 days, and left it vacant for 315 days. She had the following income and expenses: Rent income $ 7,000 Expenses  Real estate taxes 2,500  Interest on mortgage 9,000  Utilities 2,400  Repairs 1,000  Roof replacement (a capital expenditure) 12,000  Depreciation 7,500 1. Compute Anna’s net rent income or loss and the amounts she can itemize on her tax return, using the court’s approach to allocating property taxes and interest. 2. How would your answer in part (a) differ using the IRS’s method of allocating property taxes and interest?

49. LO.3 How would your answer to Problem 48 differ if Anna had rented the house for 87 days and had used it personally for 13 days?

Answer 1

48 - (1):

Because the vacation home is rented for more than 15 days and is used for more than 14 days or 10% of the days rented it is considered a rental/ personal residence.

Gross income: $7,000

Deduct: Taxes and interest: (30/365) * (11,500): $945.21

Remainder to apply to rental operating expenses and depreciation: $6054.79

Deduct: Utilities and maintenance: (30/50) * (3,400): $2040

Balance: $4014.79

Deduct: Depreciation: (30/50)* 7,500: $4500 (to extent of above number)

Net rent income: -0-

Itemized amount: 11,500- 945.21= $10554.79

(2):

Gross income: $7,000

Deduct: Taxes and interest: (30/50) * (11,500): $6,900

Remainder to apply to rental operating expenses and depreciation: $100

Deduct: Utilities and maintenance: (30/50) * (3,400): $2040

Balance: -$1940

Deduct: Depreciation: (30/50)* 7,500: $4500 (to extent of above number)

Net rent income: -0-

Itemized amount: 11,500- 6,900= 4,600

49.

The residence would be qualified as a rental residence because the 13 days used for personal use is less than the greater of 14 days or 10% of 87 days. The real estate taxes allocated to the personal days can be an itemized deduction but the mortgage interest cannot because the residence does not qualify as a personal qualified residence.

Rental Portion:

Gross income: $7,000

Deduct:

Taxes: (2,500 * .87): 2175

Mortgage Interest: (9,000 * .87): 7830

Utilities & maintenance Expense (3,400*.87): 2958

Depreciation: ((.87)* 7,500): 6525

Total Expense: 19,488

Net rent income/loss: -$12488

Itemized amount: $325