Question

Natalie owns a condominium near Cocoa Beach in Florida. This year, she incurs the following expenses in connection with her condo: Insurance $1,000 Advertising expense 500 Mortgage interest 3,600 Property taxes 900 Repairs & maintenance 650 Utilities 950 Depreciation 8,500 During the year, Natalie rented out the condo for 75 days, receiving $10,000 of gross income. She personally used the condo for 35 days during her vacation. Assume Natalie uses the Tax Court method of allocating expenses to rental use of the property. What is the total amount of for AGI (rental) deductions Natalie may deduct in the current year related to the condo? Same facts as the prior problem, what is the total amount of itemized deductions for mortgage interest and real estate taxes related to the condo?

Answer 1

A	As per Tax court method of allocating expense to rental use, Tier 1 expense
	(property tax and interest) are allocated to rental use based on fraction of days
	that the property was rented over the number of days in the year. Tier 2 expenses
	are allocated as per IRS method of allocation
	Since Natalia used the condo for 35 days, she must allocate the expenses between
	personal use and rental use days. The portion attributable to rental days are
	deductible as "for AGI" deduction
	Gross rental income		$10,000
	Expenses:
	Tier 1 expenses:
	Advertisement	$500
	Mortgage interest ($3600 x 75/365)	$740
	Property taxes ($900 x 75/365)	$185	$1,425
	Tier 2 expenses:
	Insurance ($1000 x 75/110)	$682
	Repairs and maintenance ($650 x 75/110)	$443
	Utilities ($950 x 75/110)	$648	$1,773
	Tier 3 expenses:
	Depreciation ($8500x 75/110)	$5,795	$5,795
	Total expenses		$8,993
	Net Rental income		$1,007
	For AGI deduction		$8,993
B	Natalia may deduct the personal use portion of Property taxes and mortgage interest
	since they are deductible without regard to rental income
	Mortgage interest (3600 x 290/365)	$2,860
	Property taxes (900 x 290/365)	$715
	From AGI deduction	$3,575