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Brianna owns a cottage at the beach. She and her family use the property for 30 days during the summer season and rent it to unrelated parties for 60 days. The rental receipts amount to $8,000. Total costs of operating the property are as follows:
Mortgage interest
$13,000
Property taxes
5,000
Utilities
2,000
Insurance
1,000
Maintenance
600
In addition, potential depreciation expense is $9,000.
How much of the expenses can Brianna deduct (and specify on which schedule they are included)?
Mortgage interest
$13,000
Property taxes
5,000
Utilities
2,000
Insurance
1,000
Maintenance
600
Explanation / Answer
Schedule E (Form 1040)
All the expenses can be allowed as deduction and has to be claimed in the same year. But the rental loss will be passive loss and can only be set off against passive income
Passive income is the income you earn from rental real estate or other passive activities.
Without passive income, your rental losses become suspended losses you can't deduct until you have sufficient passive income in a future year or sell the property to an unrelated party. You may not be able to deduct such losses for years.
In short, your rental losses will be useless without offsetting passive income.
So potential deduction can be only 8000 $ to the extent of rental receipt. But Brianna has any other passive income all below deductions can be claimed. Sehedule E need to be filled for the same
If no passive income, potential deduction will be operating expense of $8000
Property Taxes - 5000; Utilities - 2000 ; Insurance - 1000 - Total 8000 USD
Particulars Amount Mortgage Interest 13000 Property Taxes 5000 Utilities 2000 Insurance 1000 Maintenance 600 Depreciation 9000 Total 30600Related Questions
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