Question

During 2019, Peter rented his vacation home for 90 days and spent 30 days. Gross rental income from the property was $15,000. Peter incurred the following expense:

Mortgage and Real Estate taxes 9000

Utilities 2500

Repairs and Maintenance 1200

Depreciation 4000

Using IRS method for vacation home, compute Peters deduction for the vacation home

1. Total mortgage interest and real estate taxes allocated to vacation home?

2. Total utilities allocated to vacation home?

3. Total repairs allocated to vacation home?

4. Total depreciation allocated to vacation home?

5. What is the net profit on the rental using IRS method?

Using the court method for vacation home, compute Peters deduction for the vacation home

1. Total mortgage interest and real estate taxes allocated to vacation home?

2. Total utilities allocated to vacation home?

3. Total repairs allocated to vacation home?

4. Total depreciation allocated to vacation home?

5. What is the net profit on the rental using IRS method?

Please explain how to caculate that.

Answer 1

For interest and real estate taxes allocation, we have two methods

Tax Court method = Expense x Days Rented/365

IRS method = Expense x Days Rented/Total days used

For remaining expenses, we use number of rental day divided by total number of days used

A. Using IRS method

1. Mortgage & real-estate taxes = 9,000 x 90/120

= 6,750

2. Utilities = 2,500 x 90/120 = 1,875

3. Repairs = 1,200 x 90/120 = 900

4. Depreciation = 4,000 x 90/120 = 3,000

5. Net profit = Rental income - All allowable expenses

= 15,000 - 6,750 - 1,875 - 900 - 3,000

= 2,475

B. Court method

1. Mortgage & Real estate taxes = 9,000 x 90/365

= 2,219

2. Utilities = 2,500 x 90/120 = 1,875

3. Repairs = 1,200 x 90/120 = 900

4. Depreciation = 4,000 x 90/120 = 3,000

5. Net profit = 15,000 - 2,219 - 1,875 - 900 - 3,000

= 7,006

Note :

Here, we assumed that the tax payers is itemizing the deductions and not claiming Standard Deduction.