TP owns a residential condominium unit that he rents to tenants. TP purchased th
ID: 2523690 • Letter: T
Question
TP owns a residential condominium unit that he rents to tenants. TP purchased the condo several years ago, paying $50,000 of his own savings, and $150,000 borrowed from a local bank. Interest only is payable on the recourse loan at 7% per year.
Over the course of the year, TP received rent payments from tenants of $20,000, but he also incurred a number of expenses. He had interest payments of $10,500, condo fees of $2,000, real estate taxes of $1,500, insurance premiums of $1,000, and miscellaneous repair and service costs of $500. Consequently, TP's out of pocket expenses totaled $15,500, leaving him with a positive cash flow from the property of $4,500 ($20,000 rental payments - $15,500 expenses).
In addition, because TP was entitled to depreciation deductions with respect to the condo of $7,300, he had total deductions for tax purposes of $22,800.
What are TP's total expenses deductible for the taxable year as determined under the at-risk rules?
Select one:
A. $0
B. $2,800
C. $20,000
D. $22,800
Explanation / Answer
Answer
c ) 20000
the rental activity is a passive activity and tp had no passive income other than 20000
in rents from the condo generally rental activities are passive activites even if you materially participarted
in them however if you qualified as a real estate professional rental real estate activities which you materially
participated are nt passive activites for this purpose each interest you have in a rental real estate activity
is a separate activity unless you choose to treat all interest in rental real estate activity as one activity
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