Research Writing: Letter 03 From Chapter 6 Research Problem 2 Rex and Agnes Harr

Question

Research Writing: Letter 03 From Chapter 6 Research Problem 2 Rex and Agnes Harrell (p6-44) Read the problem in the book. You need to decide if you agree or disagree with the IRS agent and advise the clients. You must clearly explain your findings using everyday language whenever possible. You must also include what the client needs to do next including timelines. NOTE: telling the client to "come in for an appointment to discuss" is not a complete answer. In addition to the client letter, you will need to create an internal memo to be placed in the client file The internal memo will include the source information you used, why you came to your decision. The internal memo should be more technical than the client letter. It is written to help a fellow accountant who may need to look at this issue or a similar issue in the future. Think about what information you would want at your fingertips if you had to re-open this at a later date. You will upload both the letter and memo as one document. Example:if you are using word you can insert a page break between the letter and the memo.

Explanation / Answer

Rex and Agnes could consider the beach house as a rental property and the property taxes could be deducted on the basis of pro-rata share. Furthermore, the net loss from the beach house could be dettermined by mortgage interest, utilities, maintenance and repairs, and depreciation of property.

The main issue is whether the allowable 14-day personal use provision was exceeded.Section 280A of the Internal Revenue Code, which governs the treatment of homes that are used for both personal and rental purposes, according to the law he uses such unit (or portion thereof) for personal purposes for a number of days which exceeds the greater of—14 days, or 10 percent of the number of days during such year for which such unit is rented at a fair rental.A unit shall not be treated as rented at a fair rental for any day for which it is used for personal purposes.

Rex and Ages occupied the property for 38 days out of which 24 days they were engaged in substantial repair work on the beach house.Section 280A(d)(2) provides that if the taxpayer is engaged in repair and maintenance on a substantially full-time basis on any day, such use will not constitute personal use of the vacation home. Hence Rex and Agnes Harrell occupied the beach house for 14 days for personal use only can treat the beach house as a rental property

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