Question

Hassad owns a rental house on Lake Tahoe. He uses a real estate firm to screen prospective renters, but he makes the final decision on all rentals. He also is responsi- ble for setting the weekly rental price of the house. During the current year, the house rents for $1,500 per week. Hassad pays a commission of $150 and a cleaning fee of

$75 for each week the property is rented. During the current year, he incurs the follow- ing additional expenses related to the property:

Mortgage interest	$12,000
Property taxes	2,700
Utilities	1,400
Landscaping fees	900
Repairs	450
Depreciation (unallocated)	7,500

a.    What is the proper tax treatment if Hassad rents the house for only 1 week (7 days) and uses it 50 days for personal purposes?

b.    What is the proper tax treatment if Hassad rents the house for 8 weeks (56 days) and uses it 44 days for personal purposes?

c.    What is the proper tax treatment if Hassad rents the house for 25 weeks (175 days) and uses it 15 days for personal purposes?

Answer 1

(a) SINCE HE RENTED LESS THAN 14 DAYS i.e,ONLY 7 DAYS,THIS IS NOT MIXED USE REAL ESTATE.HASSAD DOES NBOT HAVE TO REPORT THE INCOME AS WELL AS NO DEDUCTION FOR EXPENSES.HOWEVER HE CAN DEDUCT THE MORTGAGE INTEREST AND PROPERTY TAXES FROM HIS SCHEDULE A AS ITEMIZED DEDUCTION ALLOWABLE FOR PERSONAL RESIDENCE

(b)HASSAD USES IT FOR ONLY 44 DAYS AND RENTED IT FOR 56 DAYS. UNDER THIS CIRCUMSTANCE HASSAD HAS USED THE HOUSE MORE THAN 10% OF RENTAL DAYS.THEN IT WILL BE CLASSIFIED AS PERSONAL RESIDENCE.THEN TAX TREATMENT WILL BE SAME AS (a) ABOVE

(c)HASSED USES HOUSE FOR 15 DAYS AND RENTED IT GFOR 175 DAYS THAT IS LESS THEN 10% OF RENTED DAYS

BUT ITS IS MORE THEN 14 DAYS.IT IS MIXED USE HOUSE.BECAUSE WE CANT CATEGORISED IN ONE BECAUSE ONLE 1 CONDITION IS BEING SATISFIED

THEN;

PARTICULARS	TOTAL	RENTAL	PERSONAL
DAYS	190	175	15
INCOME ($1500*25)	$37500	$37500
LESS:EXPENSES ALLOCATED COMMISSON($150*25) CLEANING FEE($75*25)	$3750 $1875	$3750 $1875
EXPENSES ALLOCATION MORTGAGE PROPERTY TAX ALLOCATION	365 $12000 $2700 190 DAYS	.25 $3000 $675 175 DAYS	.75 $9000 $2025 15 DAYS
DEPERICIATION	$7500	$6908
OTHER EXPENSES (SUM OF REMAINING EXPENSES)	$2750	$2533
TOTAL EXPENSES		$18741	$11025
DEDUCTIBLE EXPENSES		$18741	$11025