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John has a vacation condo in the Florida Keys that he rented out for two weeks...

John has a vacation condo in the Florida Keys that he rented out for two weeks in December for $250 a day. John has used this vacation home himself for a total of three weeks during the year. His total ( unallocated) expenses for the condo are

Taxes: $1,500

Insurance: $2000

Repairs and maintenance: $1,100

Interest: $4,500

Depreciation for the year: $1,000

John received a call from his tenants and they want to extend their rental of the condo for another week. John is in the 35 percent marginal tax bracket. What tax factors should John consider in making the decision to extend the rental of the condo?

Solutions

Expert Solution

Mr. John is in 35% marginal tax bracket

This marginal tax rate means that your immediate additional income will be taxed at this rate.

John's immediate additional income is $250*7=$1750

marginal tax on this additional income is $1750*35%=$612.5

net additional income is $1750-$612.5=$1137.5

* In addition to this 5.8 percent tax rate, a landlord must also collect the local option surtax imposed on rental payments this tax rate is applicable to the lease period to which the rent relates

* Furthermore, a lease of residential real property which is taxable as a transient rental (because it does not satisfy the six month bona fide written lease requirement) is also subject to local tourist development taxes. The rate on these local tourist development taxes varies from 5 percent to 7 percent for most major counties. There is no reduction in the tax rates of these local level tourist development taxes.

these are the relevant tax factors that should be taken care about while making the decision of extend the rental of condo.

ekkarill92 answered 5 months ago
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