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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

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Answers (1)
  1. 23 May, 11:19
    0
    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
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