Required information Problem 14-62 (LO 14-5) [The following information applies

Question

Required information

Problem 14-62 (LO 14-5)

[The following information applies to the questions displayed below.]

Natalie owns a condominium near Cocoa Beach in Florida. This year, she incurs the following expenses in connection with her condo:

During the year, Natalie rented out the condo for 93 days, receiving $29,750 of gross income. She personally used the condo for 45 days during her vacation.

Assume Natalie uses the Tax Court method of allocating expenses to rental use of the property. Assume 366 days in the current year. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

a. What is the total amount of for AGI (rental) deductions Natalie may deduct in the current year related to the condo?

b. What is the total amount of itemized deductions Natalie may deduct in the current year related to the condo?

c. If Natalie’s basis in the condo at the beginning of the year was $241,000, what is her basis in the condo at the end of the year?

d. Assume that gross rental revenue was $3,950 (rather than $29,750). What amount of for AGI deductions may Natalie deduct in the current year related to the condo?

Insurance $ 1,180 Advertising expense 665 Mortgage interest 3,300 Property taxes 1,270 Repairs & maintenance 950 Utilities 1,170 Depreciation 13,200

Explanation / Answer

Solution:

a. For AGI deductions$12,949     

Gross rental income$29,750      

Tier 1 expenses:               

Advertising expense = $665              

Mortgage interest = (93/365) × $3,300 = $841               

Property taxes = (93/365) × $1,270 = $324    

Less:  total Tier 1 expenses  (1,830)     

Balance$27,920      

Tier 2 expenses:              

Insurance = (93/138) × $1,180 = $795

Utilities= (93/138) × $1,170 = $788    

Less:  total Tier 2 expenses  (2,223)     

Balance $25,697      

Tier 3 expenses:               

Depreciation (93/138) × $13,200 = $8,896 (8,896)     

Balancenet income from rental of condo$16,801      

Total “For AGI” deductions ($1,830 + $2,223 + $8,896)$12,949

b. Itemized deductions$3,405   

Mortgage interest [(272/365) × $3,300]$2,459     

Real property taxes [(272/365) × $1,270]$946     

Total “from AGI” deductions$3,405

c. Basis$232,104     

Beginning basis$241,000     

Less: depreciation actually deducted   (8,896)   

Adjusted basis$232,104

d. For AGI deductions $1,830 may deduct all of tier 1 even though it creates a loss

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