Question

Alexa owns a condominium near Cocoa Beach in Florida. This year, she incurs the following expenses in connection with her condo:

Insurance	$	3,600
Mortgage interest		10,650
Property taxes		2,650
Repairs & maintenance		630
Utilities		3,200
Depreciation		17,300

During the year, Alexa rented out the condo for 130 days. Alexa’s AGI from all sources other than the rental property is $200,000. Unless otherwise specified, Alexa has no sources of passive income.

Assume that in addition to renting the condo for 130 days, Alexa uses the condo for eight days of personal use. Also assume that Alexa receives $38,750 of gross rental receipts and her itemized deductions exceed the standard deduction before considering expenses associated with the condo. Answer the following questions: (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

Note that the home is considered to be a nonresidence with rental use.

a. What is the total amount of for AGI deductions relating to the condo that Alexa may deduct in the current year? Assume she uses the IRS method of allocating expenses between rental and personal days.

b. What is the total amount of from AGI deductions relating to the condo that Alexa may deduct in the current year? Assume she uses the IRS method of allocating expenses between rental and personal days.

Answer 1

A) $35825

Since Alexa used the condo personally for 8 days, she must allocate the expenses between personal use and rental use days. As illustrated below, the portion attributable to the rental days are deductible as “for AGI" deductions.

Gross rental income		$38750.00
Expenses:
Insurance (130/138 × $3600)	$3391.30
Mortgage interest (130/138×10650)	$10032.61
Property tax (130/138 × 2650)	$2496.38
Repair and maintenance (130/138 × 630)	$593.48
Utilities (130/138 × 3200)	$3014.50
Depreciation (130/138 × 17300)	$16297.10
Less: total expense		$35825.00
Balance - net rental income		$2925.00
Total amount for AGI deduction		$35825

B)

Alexa may deduct the personal-use portion of property taxes since they are deductible without regard to rental income. However, she is not allowed to deduct the mortgage interest related to personal-use days because the property no longer qualifies as a personal residence. Her deduction for the property taxes is calculated as follow:

Real property taxes = (8/138) × $2,650 = $154. Note that Alexa would be able to deduct the taxes whether she itemized or not (as an increase to her basic standard deduction)