Asked by Deneatra Caesar on Jun 04, 2024
Verified
Hugh and Mary own a cabin in Big Bear that they rented for 45 days at $4,500.They used the cabin for personal use for 30 days during the year.The allocated expenses related to the cabin of $6,000 resulted in a net loss of $1,500 for this rental activity.What is the proper tax treatment of these amounts by Hugh and Mary?
A) Report net income of $4,500
B) Report rental net loss of $1,500
C) None of the amounts should be reported
D) Report income and expenses on Schedule E but expenses cannot exceed income
Net Loss
The result when a company's expenses exceed its revenues during a specific period, indicating negative profitability.
Schedule E
A form used by the IRS for reporting income and loss from rental property, royalties, partnerships, S corporations, estates, trusts, and residual interests in REMICs.
- Gain insight into the technique for submitting rental income and relevant expenses, along with the allocation strategy for mixed-use real estate.
- Identify the circumstances where rental losses may be deducted from other sources of income.
Verified Answer
ZK
Zybrea KnightJun 04, 2024
Final Answer :
D
Explanation :
Hugh and Mary should report the rental income and expenses on Schedule E of their tax return. However, the expenses cannot exceed the rental income, which results in a net rental loss of $1,500. The personal use of the cabin by Hugh and Mary for 30 days should be excluded from the rental calculation.
Learning Objectives
- Gain insight into the technique for submitting rental income and relevant expenses, along with the allocation strategy for mixed-use real estate.
- Identify the circumstances where rental losses may be deducted from other sources of income.
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