During the year, Evan rented his vacation home for 60 days and spent 90 days the
ID: 2519000 • Letter: D
Question
During the year, Evan rented his vacation home for 60 days and spent 90 days there. Gross rental income from the property was $3,000. Evan incurred the following expenses: mortgage interest, $2,000; real estate taxes, $2,500; utilities, $1,000; maintenance, $300; and depreciation, $5,000. I. Identify how this vacation home is treated and how you came to your conclusion (state the rule and apply the facts to the rule) ompute Evan's allowable rental deductions for the vacation home using the Court's approach, rounding to the nearest dollar. Your answer should follow the format used in Chapter 6, Example 36 in your text 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 and how much may be deducted? 6. How are these personal expenses classified (for AGI, from AGI)? 7. What form/schedule are the personal expenses reported on?Explanation / Answer
1. As per Internal Revenue Services, if a unit is rentde out for more than 15 days, then you need to report the rental income in Schedule E. A house is considered as a home if if you use it for personal purposes for more than the greater of these:
As per this rule since Evan rented his vacation home for more than 14 days (i.e for 60 days) he needs to report this this rental income. He cam claim certain expenses but such expenses need to allocated to the time the unit was rented out and it’s personal use (90 days).
2. Computation of allowable rental deductions for the vacation home will prorated on the basis of the days:
Total days => 60+90 = 150
Mortgage Interest = 2000/150*60 = 800
Real Estate Taxes = 2500/150*60 = 1000
Utilities = 1000/150*60 = 400
Maintenance = 300/150*60 = 120
Depreciation = 5000/150*60 = 2000
Total = $4470
Total (A)
Evan can carry forward some of these rental expenses to the next year, subject to the gross rental income limitation for that year.
3. Evan should report rental income and expenses on Schedule III.
Gross Rental Income $3000 Less. Rental Portion of Mortgage Interest $800 Less. Rental Portion of Real Estate Taxes $1000Total (A)
$1200 Less Rental Portion of Utitlities $400 Less Rental Portion of Maintenance $120 Total (B) $680 Less Rental Portion of Depreciation 2000 Minimum of $2000 or $680 680Related Questions
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