Question

Billy rented his vacation home during the year for three monts and he spent one month there (assume 30 day months). Gross rental income from the property was $6,500. Billy incurred the following expenses: Mortgage interest $3,000; real estate taxes $1,500; utilitities $600; repairs $1,800; depreciation $4,000

Assume you are a tax accountant and calculate for Billy what he needs to report on his tax return.

Please show your entire calculation

Answer 1

If you rent a dwelling unit to others that you also use as a residence, limitations may apply to the rental expenses you can deduct. You're considered to use a dwelling unit as a residence if you use it for personal purposes during the tax year for more than the greater of:

14 days, or
10% of the total days you rent it to others at a fair rental price.

In this case belly has spent one month in his vacation home which is greater than 14 days.

Hence it is considered as a dwelling unit.

Belly can deduct rental expenses upto the level of rental income

Calculation of net income of Billy to be reported in his tax return:

Gross rental income from property : 6500

Total of rental expenses:

mortgage interest. 3000

Real estate taxes. 1500

Utilities. 600

Repairs. 1800

Total expense. 6900

SUMMARY

Belly can deduct only 6500 from his income and not 6900

Hence his total income to be reported is 0

Less: depreciation. 4000