The Ryans own a second home they use for their annual ski trips. They purchased

Question

The Ryans own a second home they use for their annual ski trips. They purchased the home for $150,000 on March 15, 2012. The purchase price included $30,000 for the land. In 2015, they spent 8 days there. Wishing to cut the costs of maintaining this home, they rented it out for 72 days in 2015 at the rate of $150 per day. Expenses relating to this home were as follows: Property tax $2,100 Utilities and maintenance 900 Mortgage interest 2,390 Explain one relevant tax issue for the Ryans and describe the tax advantages and disadvantages of what they may be faced with

Explanation / Answer

If the second house is rent out for 15 days or more, and use it for less than 14 days or 10% of days the hoose was rented.

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This property is considered a rental property, and the rental activities are viewed as a business. If your second home is rented out for more than 14 days, all rental income must be reported to the IRS. You can deduct rental expenses (including mortgage interest, property taxes, insurance premiums, fees paid to property managers, utilities, and 50% of depreciation), but you have to factor in the amount of time the property is used for personal use versus rental use. And, as a rental property, up to $25,000 in losses might be deductible each year. Fix-up days don’t count as personal use, so you can spend more than 14 days at the property as long as it is for maintenance purposes. You should be able to document the maintenance activities, however, with receipts to prove you weren't using the property for leisure purposes on those days.

RAYAN SPENT 8 DAYS THERE AND RENTED IT FOR 72 DAYS, SO THE ABOVE RULE WILL BE APPLIED.

TOTAL INCOME TO BE REPORTED TO IRS IS AS FOLLOWS

RENT INCOME (72 * $150) = $10800

LESS PROERTY TAX ($2100 / 80 DAYS) * 72 DAYS = ($1890)

LESS UTILITES & MAINTANCE ($900 /80DAYS) * 72 = ($810)

LESS MORTAGE INTEREST ($2390 / 80DAYS) * 72 = ($2151)

NET RENTAL INCOME TO BE REPORTED = $5949

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THE ADVANTAGES IS IF ANY LOSSES SUFFERED FOR THE SECOND HOUSE THAN UPTO $ 25000 MIGHT BE DEDUCTABLE EACH YEAR FROM THE TOTAL INCOME.

AND THE DISADVANTAGE IS AS A RENTAL PROPERTY THE NET RENTAL INCOME WILL BE REPORTED IN THE IRS.

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