During the year (not a leap year), Anna rented her vacation home for 30 days, us
ID: 2562584 • Letter: D
Question
During the year (not a leap year), Anna rented her vacation home for 30 days, used it personally for 20 days, and left it vacant for 315 days. She had the following income and expenses: Rent income $7,000 Expenses Real estate taxes Interest on mortgage Utilities Repairs Roof replacement (a capital expenditure) Depreciation 2,500 9,000 2,400 1,000 12,000 $7,500 If an answer is zero, enter "O". Assume 365 days in a year. a. Using the court's approach to allocating property taxes and interest. Compute Anna's taxable net rent income or deductible rental loss b. Which expenses (if any) can she claim as itemized deductions? If it is an itemized deduction select "Yes", otherwise select "No".Explanation / Answer
a) Using the court's approach to allocating property taxes and interest. Under the Tax Court approach, interest and taxes are allocated to rental use based on the fraction of days that the property was rented over the number of days in the year Rent income $7,000 Less: Expenses Real estate taxes = $2500 x 30 days/ 365 days $205.48 Interest on mortgage $9000 x 30 days / 365 days $739.73 Remaining to apply to rental operating expenses and depreciation $6,054.79 Utilities and repairs [30/50 × ($2,400 + $1,000)] -$2,040 $4,014.79 Depreciation (30/50 × $7,500 = $4,500, limited to $4014.79) -$4,014.79 Net rental income $0 b. Which expenses (if any) can she claim as itemized deductions? If it is an itemized deduction select "Yes", otherwise select "No Expenses Real estate taxes Yes Interest on mortgage Yes Utilities No Repairs No Roof replacement (a capital expenditure) No Depreciation No c.Compute the amount she can itemize on her tax return related to these expenses. Real estate taxes and Interest on mortgage = $2500 + $9000 $11,500 Real estate taxes = $2500 x 30 days/ 365 days -$205.4795 Interest on mortgage $9000 x 30 days / 365 days -$739.7260 Itemized deduction $10,555 d. Using the IRS's method of allocating property taxes and interest: Rent income $7,000 Less: Expenses Real estate taxes = $2500 x 30 days/ 50 days $1,500 Interest on mortgage $9000 x 30 days / 50 days $5,400 Remaining to apply to rental operating expenses and depreciation $100 Utilities and repairs [30/50 × ($2,400 + $1,000)] limited to $100 -$100 Net rental income $0 e.Compute the amount she can itemize on her tax return related to these expenses. Real estate taxes and Interest on mortgage = $2500 + $9000 $11,500 Real estate taxes = $2500 x 30 days/ 50 days -$1,500 Interest on mortgage $9000 x 30 days / 50 days -$5,400 Itemized deduction $4,600
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