Charles and Sarah own a home in Palm Springs, CA. During the year, they rented the house for 40 days for $5,000 and used it for personal use for 18 days. The house remained vacant for the remainder of the year. The expenses for the house included $16,000 in mortgage interest, $4,500 in property taxes, $1,000 in utilities, $1,200 in maintenance, and $9,800 in depreciation. What is the deductible loss for the rental of their home (without considering the passive loss limitation) ? Use the Tax Court method for allocation of expenses.

A.$0

B. $5,000 net income

C. $17,414 net loss

D. $27,500 net loss

Question

Business

Marcel Nixon

23 May, 11:02

Charles and Sarah own a home in Palm Springs, CA. During the year, they rented the house for 40 days for $5,000 and used it for personal use for 18 days. The house remained vacant for the remainder of the year. The expenses for the house included $16,000 in mortgage interest, $4,500 in property taxes, $1,000 in utilities, $1,200 in maintenance, and $9,800 in depreciation. What is the deductible loss for the rental of their home (without considering the passive loss limitation) ? Use the Tax Court method for allocation of expenses.

A.$0

B. $5,000 net income

C. $17,414 net loss

D. $27,500 net loss

+4

Answers (1)

Know the Answer?

Hall · Answer 1

Option (c) is correct.

Explanation:

Total expenses:

= mortgage interest + property tax + utilities and maintenance + Depreciation expense

= $16,000 + $4,500 + ($1,000 + $1,200) + $9,800

= $32,500

Proportionate rental expenses = $32,500 * 40 days : (40 days + 18 days)

= $22,414

Rental Loss = Rental income - Proportionate rental expenses

= $5,000 - $22,414

= - $17,414