Question

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

Insurance	$	1,050
Advertising expense		965
Mortgage interest		5,800
Property taxes		1,080
Repairs & maintenance		1,130
Utilities		550
Depreciation		8,700

During the year, Natalie rented out the condo for 94 days, receiving $22,500 of gross income. She personally used the condo for 50 days during her vacation.

Assume Natalie uses the Tax Court method of allocating expenses to rental use of the property. Assume 365 days in the current year.

a. What is the total amount of for AGI (rental) deductions Natalie may deduct in the current year related to the condo (assuming she itemizes deductions before considering deductions associated with the condo)?

b. What is the total amount of itemized deductions Natalie may deduct in the current year related to the condo?

c. If Natalie’s basis in the condo at the beginning of the year was $210,000, what is her basis in the condo at the end of the year?

d. Assume that gross rental revenue was $4,500 (rather than $22,500). What amount of for AGI deductions may Natalie deduct in the current year related to the condo?

Answer 1

ANSWER

a)

AGI (rental) deductions Natalie may deduct in the current year related to the condo is

Particulars	Amount ($)	Amount ($)
Gross Rental Income		22,500
Less: Tier 1 expenses
Advertising expense	965
Mortgage Interest (5,800*94/365)	1493.69863
Property taxes (1,080*94/365)	278.1369863	2736.835616
Balance		19,763
Tire 2 expenses:
Insurance (1,050*94/144)	685.4166667
Repairs and maintenance (1,130*94/144)	737.6388889
Utilities (550*94/144)	359.0277778	1782.083333
Balance		17,981
Tier 3 expenses
Depreciation (8,700*94/144)		5679.166667
Balance		12,302
Total AGI Deductions		10198

b)

Total amount of itemized deductions Natalie may deduct in the current year related to the condo is

Personal use portion of mortgage interest and property taxes is deductible

Particulars	Amount ($)
Mortgage Interest (5,800*271/365)	4306.30137
Property taxes (1,080*271/365)	801.8630137
Total deduction	5108

c)

Natalie’s basis in the condo at the beginning of the year was $210,000, so her basis in the condo at the end of the year is

Particulars	Amount ($)
Beginning basis	2,10,000
Less: depreciation deducted	5679.166667
Ending basis	2,04,321

d)

Tier 1 expenses will be deducted from the Gross income.

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