V owns a small beach front cottage (her second home), which she rented out durin

Question

V owns a small beach front cottage (her second home), which she rented out during the past year. She is actively involved in this rental activity, which is her only venture of this type. She rented the cottage for 200 days during the year for $10,000. She also used it personally for 18 days. During the year, expenses allocable to the rental activity were, interest $5,000, taxes $4,000, maintenance and insurance $1,000, and depreciation expenses allocable to the cottage of $4,000. For the year, her adjusted gross income was $80,000. With respect to the expenses attributable to the rental, V may a. deduct expenses of $10,000. b. deduct expenses of $10,000 and the balance of any remaining expenses to the extent of any passive income that she may have. c. deduct $14,000 of expenses. d. deduct none of the expenses. e. deduct none of the above.

Explanation / Answer

Answer

A. V may deduct expenses of $ 10,000.

Reason: Because V has used the cottage for 18 days which is more than greater of14 days or 10% of total days rented ( 10% of 200 days= 20 days).

Section 280A concerning rented cottages or vacation homes restrict her deductions to the rental income of $10,000 produced by the property .

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