Please help me answer the following questions in correspondence with 2016 tax la
ID: 2457072 • Letter: P
Question
Please help me answer the following questions in correspondence with 2016 tax laws:
In the current year, Sam Lett purchased a condominium in Hilton Head Island, South Carolina. Sam and his family used the condominium for a total of 30 days. The condominium was rented out a total of 70 days during the year, generating $9,000 of rental income. Sam incurred the following expenses:
Property taxes
$3,000
Mortgage interest
1,000
Insurance
1,000
Utilities
1,000
Depreciation
8,000
(a.) Determine Sam's deductible expenses using the IRS approach (Total Rental Days / Total Days Used)
(b.) How much depreciation can be deducted in the current year if the rental income was $12,000?
(c.) How much can deduct with regard to the interest and taxes on Schedule A?
Property taxes
$3,000
Mortgage interest
1,000
Insurance
1,000
Utilities
1,000
Depreciation
8,000
Explanation / Answer
a.
Expenses:
Insurance 1,000
Mortgage interest 1,000
Property taxes 3,000
Utilities 1,000
Depreciation 8,000
total expenses 34,440
Total deductions 14,000
The IRS method would allow to be deducted 42.86% as rent related expense and remaining as itemized deduction.
(30days/70days)*100= 42.86%
i.e. 6,000 as rent related expense and 8,000 as itemized deduction.
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