Katy owns a second home. During the year, she used the home for 20 personal-use days and 50 rental days. Katy allocates expenses associated with the home between rental use and personal use. Katy did not incur any expenses to obtain tenants.
Which of the following statements is correct regarding the tax treatment of Katy's income and expenses from the home?
a) Katy includes the rental receipts in gross income and deducts the expenses allocated to the rental use of the home for AGI.
b) Katy deducts from AGI interest expense and property taxes associated with the home not allocated to the rental use of the home.
c) Assuming Katy's rental receipts exceed the interest expense and property taxes allocated to the rental use, Katy's deductible expenses for the year may not exceed the amount of her rental receipts (she may not report a loss from the rental property).
d) All of these choices are correct.
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