During the year, Evan rented his vacation home for 90 days and spent 60 days the
ID: 2577180 • Letter: D
Question
During the year, Evan rented his vacation home for 90 days and spent 60 days there. Gross rental income from the property was $5,000. Evan incurred the following expenses:
mortgage interest, $2,000; real estate taxes, $2,500; utilities, $1,000; maintenance, $300; and depreciation, $5,000.
1. Identify how this vacation home is treated and how you came to your conclusion (state the rule and apply the facts to the rule)
2. Compute Evan's allowable deductions for the vacation home using the IRS's approach.
3. What schedule does Evan report rental income and expenses on?
4. Prepare the schedule using the figures above and attach it to your answer.
5. Which personal expenses are deductible? Your answer should include: how these expenses classified (for AGI, from AGI- what form/schedule) and the amount of the deduction.
Explanation / Answer
As per the topic no 415 of IRS, Renting Residential and Vacation Property, if a person rent out his house which is used for his personal purpose for some part of days then such rental income of the person shall be taxable income of the person as proportionely reduced by mortgage interest, real estate taxes, casualty losses, maintenance, utilities, insurance, and depreciation.
A dwelling unit is considered as residence if person use it for personal purposes during the tax year for more than the greater of:
In the given case person has used property for residence purpose for more than 14 days and is therefore to be considered property used for residential purpose. Expenses incurred on the property will also be proportinately divided between residential and rented on the basis of number of days. Moreover, you can deduct expenses on rental only upto the amount of rental income.
Expenses deductible as Rented property = (2,000 + 2,500 + 1,000 + 300 + 5,000) / 150 x 90 days = $6,480
Rent Received = $5,000
Expenses deductible from rental income = $6,480 or $5,000 whichever is lower
= $5,000
1. As stated above, vacation home will be considered as "use as a home" property since it was used for more than 14 days in the year. Related rules and topics:
2. Evan's allowable deduction for vacation home is $5,000 as computed above.
3. Rental income and expenses are required to be reported on Schedule E, Supplemental Income and Loss.
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