Question

Lynn and Bruce own a vacation cottage on the lakeside.  They rented the cottage last year for 60 days, and used it for themselves and their family for 30 days.   They had the following income and expenses for the cottage.

Rental Income                         $22,000

Real Estate Taxes                    $6,000

Mortgage Interest Paid           $9,000

Mortgage Principal Repaid     $5,000

Electric, Phone, gas                 $4,000

Repairs                                    $1,000

Insurance                                $1,000

Depreciation                           $8,000

Homeowners Assn. Fees        $1,000

For real estate taxes and mortgage interest, there are two alternative approaches on how to allocate these, the "tax court approach" and the "IRS approach."  Using the "IRS approach," what are the total expenses that they can deduct related to the lakeside cottage rental?  Show your calculations.

Answer 1

Under the IRS method, the ratio is Number of Days rented by total no. of Days ( Rented Days + Personal Days).

method: Amount (3) Solution : Calcution of expenses under IRS Posticulars I workings Real Estate Taxes 6000 700$ 60190 Mortgage Intrest Paid 9000 X 60190 Electric Phone, gas / your x 60/90 1000 x 60/90 Insurance 81000 x 60 90 Depreciatim 8000 X60190 Homeowns Ass fees 1000 X60/90 Tool s started with gxpen Wл Repairs 2662 667 667 5333 666 1 20.000 CamScanner