Question

Careen owns a condominium near Newport Beach in California that she rents out part of the year. This year, she incurs the following expenses in connection with her rental condo:

Mortgage Interest	$9,490
Property Taxes	6,570
Insurance	3,220
Repairs and maintenance	1,610
Utilities	3,703
Depreciation	11,270

  
During the year, Careen rented the condo for 112 days, receiving $17,600 of gross income. She personally used the condo for 49 days. Assuming Careen uses the court method of allocating expenses to rental use of the property.

In addition to expenses listed above, she paid the following amounts:

home mortgage interest on her personal residence	$7,100
property taxes on her personal residence	5,200
state income taxes	8,700
charitable contributions	2,900

Determine how much depreciation she is allowed to deduct. Then determine her net rental income (loss), her total amount of “for AGI” deductions, and her total amount of itemized deductions (from AGI). Include and fill in the following table within your Excel worksheet:

Depreciation Deducted
Net Rental Income (Loss)
Total for AGI Deductions
Total Itemized (from AGI) Deductions

EXPLAIN!

Answer 1

Depreciation Deducted	$4686
Net Rental Income (Loss)	$2050
Total for AGI Deductions	$9082
Total Itemized (from AGI) Deductions	$15550

Under the Court Method we would allocate taxes and interest based on 25 percent (112 days rented divided by 365 days) and use the IRS 75 percent allocation for costs of maintenance, repairs, etc. When rental property is classified as a vacation home, depreciation can be deducted only to the extent of the net rental income from the property (minus the allocable portion of mortgage interest and real estate taxes). Solution Rented 112 days Personal use 49 days Rental income $         17,600 Deductions:: Expenses incurred Interest and taxes $        16,060 =-(9490+6570)*(112/365) $         (4,928) Insurance $          3,220 =-3220*112/(112+49) $         (2,240) Repairs and maintenance $          1,610 =-1610*112/(112+49) $         (1,120) Utilities $          3,703 =-3703*112/(112+49) $         (2,576) Income before deduction for Depreciation $ 6,736 =(17600-4928-2240-1120-2576) Depreciation Expense $         (4,686) $        11,270 =-6736*112/(112+49) ______ Net Rental Income $            2,050 =6736-4686 Deductions for interest        and taxes on Schedule A $ (11,132) =-(9490+6570)+4928 _______ Total reduction in income                           $         (9,082) =(2050-11132) Total itemized Deductions Mortagage Interest $            9,470 Property Taxes $            6,570 Insurance $            2,240 Repairs and maintenance $            1,120 Utilities $            2,576 Depreciation $            4,686 Total itemized Deductions $ 26,662