Question

Natalie owns a condominium near Cocoa Beach in Florida. This year, she incurs the following expenses in connection with her condo: Insurance $ 1,000 Advertising expense 500 Mortgage interest 3,500 Property taxes 900 Repairs & maintenance 650 Utilities 950 Depreciation 8,500 During the year, Natalie rented out the condo for 75 days, receiving $10,000 of gross income. She personally used the condo for 35 days during her vacation. Natalie's itemized deduction for nonrental taxes is less than $10,000 by more than the property taxes allocated to the rental use of the property. Assume Natalie uses the Tax Court method of allocating expenses to rental use of the property. Assume 366 days in the current year.

A. What is the total amount of for AGI (rental) deductions Natalie may deduct in the current year related to the condo (assuming she itemizes deductions before considering deductions associated with the condo)?

b. What is the total amount of itemized deductions Natalie may deduct in the current year related to the condo?

C. If Natalie’s basis in the condo at the beginning of the year was $150,000, what is her basis in the condo at the end of the year?

d. Assume that gross rental revenue was $2,000 (rather than $10,000). What amount of for AGI deductions may Natalie deduct in the current year related to the condo?

Answer 1

A)

AGI calculation under Tax Court Method (Schedule E)
	$	$
Gross Rental Income		10,000
Less: Category #1 Deduction
Mortgage Interest ($3,500 x75/366)	717.21
Property Taxes ($900 x 75/366)	184.43
Advertisement Expense	500
Subtotal		-1,401.64
		8,598.36
Less: Category #2 Deduction
Repairs & Maintenance ($650 x 75/110days)	443.18
Utilities ($950 x75/110 days)	647.73
Insurance ($1,000 x75/110 days)	681.82
Subtotal		-1,772.73
		6,825.63
Less: Category #3 Deduction
Depreciation ($8,500 x 75/110)		-5,795.45
(Limited to remaining gross rental income)
Rental Income		1,030.18

B

Schedule A - Itemized Deduction		$
Mortgage Interest ($3,500 x(366 -75)/366)		2,782.79
Property Taxes ($900 x(366-75)/366)		715.57
		3,498.36

C

Condo Basis		$
Condo basis at the beginning of the year		150,000.00
Less : Depreciation		5,795.45
At the end of year		144,204.55

D

If gross total revenue was $ 2,000 then AGI deduction for the current year

Total Category #1 deduction and part of category #2 deduction as these expenses limited to gross rental income since it is rented for residence purpose.

Category # 1 deduction

Mortgage Interest ($3,500 x75/366)	717.21
Property Taxes ($900 x 75/366)	184.43
Advertisement Expense	500
Subtotal		1,401.64

Part of category # 2 deduction

Repairs & Maintenance ($650 x 75/110days)	443.18
Utilities ($950 x75/110 days)	647.73
Insurance ($1,000 x75/110 days)	681.82
Subtotal		1,772.73

Limited to ( $ 2,000 – 1,401.64 )                                                          598.36

There would be loss in rental income for Natalie for current year.