Question

12-25 DU COU- i une passive loss rules. Vacation Home Rental. S owns a condominium in Florida, which he and his family use occasionally. During the year, he used the condominium for 20 days and rented it for 40 days. The remainder of the year, the condominium was vacant. S compiled the following information related to the condominium for the entire year: $1,000 Rental income ........ Expenses: Interest on mortgage ........................ Maintenance ................................................. Depreciation ..................... 3,650 900 6,000 a. b. Compute the tax effect of the rental activity on S. Assuming S only used the condominium personally for ten days, compute the tax effect. Assuming S only rented the condom only rented the condominium for 14 days, compute the tax effect. c.

Answer 1

(a) Tax effect of Rental Activity on S:-

This is a case of mixed use by owner & Tenant.

To be treated as a rental property for Tax Loss purpose the personal use can't exceed 14 days or 10% of the days the unit was rented during the year the unit was rented.

In the given situation since the property was used for personal use for 20 days, S can claim proportionate expenses but only to the extent of Rental Income i.e. rental income can't be a loss.

Calculation:-

Rental Income $1000

Less:- Deductible Expenses(Proportionate)

Interest on Mortgage (3650*40/60) 2433

Maintenance Exp (900*40/60) 600

Depreciation (6000*40/60) 4000

Expenses deductible only to the extent of Income 1000

Taxable Rental Income 0

(b) If the property is used for personal use for less than 14 days or less it is considered as a rented property:-

Rental Income $1000

Less:- Deductible Expenses

Interest on Mortgage 3650

Maintenance Exp 900

Depreciation    6000

Total Expenses deductible 10550

Taxable Rental Income (Loss) 9550

Loss to be set off with other incomes if any

(c) If the condominium is rented for only 14 days:-

It is considered as for personal use and no expenses can be deducted.