Question

Use the following facts to answer problems
Alexa owns a condominium near Cocoa Beach in Florida. This year, she incurs the following expenses in connection with her condo:

Insurance $2,000
Mortgage interest 6,500
Property taxes 2,000
Repairs &maintenance 1,400
Utilities 2,500
Depreciation 14,500

During the year, Alexa rented out the condo for 100 days. She did not use the condo at all for personal purposes during the year. Alexa’s AGI from all sources otherthan the rental property is $200,000. Unless otherwise specified, Alexa has no sources of passive income.

61. Assuming Alexa receives $20,000 in gross rental receipts, answer the following questions:
a. What effect does the rental activity have on her AGI for the year?

b. Assuming that Alexa’s AGI from other sources is $90,000, what effect does the rental activity have on Alexa’s AGI? Alexa makes all decisions with respect to theproperty.

c. Assuming that Alexa’s AGI from other sources is $120,000, what effect does the rental activity have on Alexa’s AGI? Alexa makes all decisions with respect to theproperty.

d. Assume that Alexa’s AGI from other sources is $200,000. This consists of $150,000 salary, $10,000 of dividends, and $25,000 of long-term capital gain and net rentalincome from another rental property in the amount of $15,000.
What effect does the Cocoa Beach Condo rental activity have on Alexa’s AGI?

Answer 1

Expenses in total: 28,900. This gives her a loss of 8,900.

a. What effect does the rental activity have on her AGI for the year?

Since her AGI is over 150,000, the loss is not deductible and does not affect her AGI.

(A loss of up to 25,000 is deductible against portfolio or active income, but the 25,000 is reduced by 50% of AGI over 100,000. So at 150,000, there is no deduction against portfolio or active income)

b. Assuming that Alexa’s AGI from other sources is $90,000, what effect does the rental activity have on Alexa’s AGI? Alexa makes all decisions concerning the property.

Since Alexa’s AGI is less than 100,000, it is deductible against her other income. So it would reduce her AGI to 81,100.

c. Assuming that Alexa’s AGI from other sources is $120,000, what effect does the rental activity have on Alexa’s AGI? Alexa makes all decisions concerning the property.

At 120,000, her loss is limited to 15,000 (25,000 – 50%(120,000-100,000)), but since her loss is only 8,900, it is fully deductible and will bring her AGI down to 111,100.

d. Assume that Alexa’s AGI from other sources is $200,000. This consists of $150,000 salary, $10,000 of dividends, and $25,000 of long-term capital gain and net rental income from another rental property in the amount of $15,000.

What effect does the Cocoa Beach Condo rental activity have on Alexa’s AGI?

In this situation, the 8,900 loss is deductible against the other rental income of 15,000. So it will bring her AGI down to 191,100.