Question

2 points Saved QUESTION 49 B. During the year Martin rented his vacation home for three months and spent one month there. Gross rental income from the property was $5,000. Martin incurred the following expenses: mortgage interest, $3,000 real estate taxes, S1,500; utilities, $800; maintenance, $500; and depreciation, $4,000. Compute Martin's allowable deductions for the vacation home, using months to simplify the computation (rather than days as usually used in L.R.C. computations) and using the court-approved approach favorable to the taxpayer. 49. The amount of taxes and interest deductible against the rental income under the court approved approach is: a $1,125 Ob b. so. c c $3,375 d d $4.500

Utilities and maintenance deductible is? Deductible depreciation is? Net income from activity? If it’s approach is used for deduction, what is the net income from activity? What is the order of deduction?

this is for the year ending in 2019. also i meant to put if the IRS aproach is used for the deductions what would be the net income from the activity.

Answer 1

Solution:

For utilities and maintenance, the deduction under the court approved method would still be the method under IRS since only mortgage interest & taxes is covered in the ruling, so the deductible proportion 3/4. So that would be (800+500)*3/4 = $ 975

Depreciation deduction = $4,000*3/4 = $3,000

Mortgage interest and real estate taxes as per the court ruling = (3000+1500)*3/12 = $1,125

The net income from activity = $5,000 - $1125 - $ 975 - $2900 = $0

Using the IRS approach, the proportion of deductible expenses would uniformly be 3/4

So in the order of IRS deductions:

Rental income    $5000

Less: Real estate taxes ($1500*3/4)    ($1125)

   Mortgage Interest ($3000*3/4)    ($3000)

Remainder for operating exp & depn $875

Less: Util & maint ((800+500)*3/4) (remainder $875) ($ 875)

Remainder for depreciation    $    -

Less: Depreciation    $    -

Net rental income $    -