*Please clearly state what answer goes to each part.* Alexa owns a condominium n

Question

*Please clearly state what answer goes to each part.*

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

  

During the year, Alexa rented out the condo for 100 days. She did not use the condo at all for personal purposes during the year. Alexa’s AGI from all sources other than the rental property is $200,000. Unless otherwise specified, Alexa has no sources of passive income.

Assuming Alexa receives $20,000 in gross rental receipts, answer the following questions: (Leave no answer blank. Enter zero if applicable.)

a. Assuming that Alexa’s AGI from other sources is $90,000, what effect does the rental activity have on Alexa’s AGI (increase, decrease, or no effect) and state by what amount? Alexa makes all decisions with respect to the property.

b. Assuming that Alexa’s AGI from other sources is $120,000, what effect does the rental activity have on Alexa’s AGI(increase, decrease, or no effect) and state by what amount? Alexa makes all decisions with respect to the property.

c. Assume that Alexa’s AGI from other sources is $200,000. This consists of $150,000 salary, $10,000 of dividends, $25,000 of long-term capital gain, and net rental income from another rental property in the amount of $15,000. What effect does the Cocoa Beach Condo rental activity have on Alexa’s AGI(increase, decrease, or no effect) and state by what amount?

Insurance $ 2,000 Mortgage interest 6,500 Property taxes 2,000 Repairs & maintenance 1,400 Utilities 2,500 Depreciation 14,500

Explanation / Answer

Part a)

Alexa's AGI will decrease by $8,900.

_____

The decrease in income (which is same as loss from rental activity) is calculated as below:

As the amount of net rental income is a loss and Alexa is an active participant in the rental activity (as she owns more 10% of the property and takes all decisions with respect to the property related matters), she will be allowed to claim a maximum deduction of either $25,000 or $8,900 (actual loss) whichever is less as per applicable rules (since Alexa's AGI is less than $100,000).

_____

Part b)

Alexa's AGI will decrease by $8,900.

_____

The reduction in AGI will be less of the following two amounts:

1) Amount of net loss which is $8,900 (as calculated in Part b)

or

2) Exception Amount = Maximum Exception - Phased Out Amount = 25,000 - (120,000 - 100,000)*.50 = $15,000

_____

Explanation for Exception Amount

As Alexa's AGI from other sources exceeds the limit of $100,000, a part of exception amount will get phased out as per the applicable rules. The phaseout is 50 cents for every dollar by which AGI exceeds $100,000. In the given case, the AGI is $20,000 (120,000 - 100,000) more than the limit. Therefore, the exception amount of $25,000 will get phased out by $10,000 (20,000*.50).

_____

Part c)

Alexa's AGI will decrease by $8,900.

_____

Explanation:

As Alexa has passive income (in the form of rental income from anothe property), she will be able to claim a deduction equivalent to her net loss (which is $8,900) from Cocoa Beach Condo rental activity as per applicable rules. Her total AGI after all adjustments is calculated as below:

or

AGI = 200,000 - 8,900 (Amount of Net Loss from Cocoa Beach Condo Rental Activity) = $191,100

Gross Rental Income 20,000 Less Expenses: Insurance 2,000 Mortgage Interest 6,500 Property Taxes 2000 Repairs and Maintenance 1,400 Utilities 2,500 Depreciation 14,500 Total Expenses 28,900 Balance (Net Rental Income) -$8,900

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