Asked by Diego Silva on May 20, 2024
Verified
Robert and Melissa own a home in Big Bear Lake,California.During the year,they rented it for 55 days for $11,000 and used it for 12 days for personal use.The expenses for the house included $12,000 in mortgage interest,$2,000 in property taxes,$1,000 in utilities,$600 in maintenance,and $4,000 in depreciation.What is their income or loss from their cabin (without considering the passive loss limitation) ? Use the IRS method for allocation of expenses.(Round your answer to the nearest whole number)
A) $0.
B) $2,947 net loss.
C) $5,090 net loss.
D) $11,000 net income.
Mortgage Interest
The interest charged on a loan used to purchase a residence, which can be deductible for taxpayers who itemize deductions on their income tax returns.
Property Taxes
Taxes assessed on real estate by local government, based on the property's assessed value.
Depreciation
The accounting method of allocating the cost of a tangible asset over its useful life, reflecting wear and tear or obsolescence.
- Delineate the differences in property usage between personal and rental objectives and their tax outcomes.
- Familiarize yourself with the processing of rental earnings and expenditures for properties designated for personal and rental use.
Verified Answer
AC
Amazon CueenMay 20, 2024
Final Answer :
C
Explanation :
First, we need to allocate the expenses between rental and personal use based on the number of days of each.
Expenses allocated to rental use:
Mortgage interest: $12,000 x 55 / 67 = $9,863
Property taxes: $2,000 x 55 / 67 = $1,644
Utilities: $1,000 x 55 / 67 = $820
Maintenance: $600 x 55 / 67 = $492
Depreciation: $4,000 x 55 / 67 = $3,311
Total expenses allocated to rental use: $16,130
Expenses allocated to personal use:
Mortgage interest: $12,000 x 12 / 67 = $2,139
Property taxes: $2,000 x 12 / 67 = $358
Total expenses allocated to personal use: $2,497
Rental income: $11,000
Rental expenses: $16,130
Net rental loss: -$5,130
Since their rental expenses exceed their rental income, they have a net rental loss of $5,130. This loss can be used to offset other passive income, or carried forward to future years.
Expenses allocated to rental use:
Mortgage interest: $12,000 x 55 / 67 = $9,863
Property taxes: $2,000 x 55 / 67 = $1,644
Utilities: $1,000 x 55 / 67 = $820
Maintenance: $600 x 55 / 67 = $492
Depreciation: $4,000 x 55 / 67 = $3,311
Total expenses allocated to rental use: $16,130
Expenses allocated to personal use:
Mortgage interest: $12,000 x 12 / 67 = $2,139
Property taxes: $2,000 x 12 / 67 = $358
Total expenses allocated to personal use: $2,497
Rental income: $11,000
Rental expenses: $16,130
Net rental loss: -$5,130
Since their rental expenses exceed their rental income, they have a net rental loss of $5,130. This loss can be used to offset other passive income, or carried forward to future years.
Learning Objectives
- Delineate the differences in property usage between personal and rental objectives and their tax outcomes.
- Familiarize yourself with the processing of rental earnings and expenditures for properties designated for personal and rental use.