Question

Ben owns a cozy vacation cabin in the Black Hills. During 2018, Ben rented his cabin for three months and spent one month there with her own family. Gross rental income from the property was $5,000. Ben incurred the following expenses: mortgage interest, $3,000; real estate taxes, $1,500; utilities, $800; maintenance, $500; and depreciation, $4,000.

A) Is Ben’s home primarily personal, primarily rental, or personal/rental? Explain fully.

B) Compute Ben’s allowable deductions for the vacation home. Use the court approach.

C) Compute Ben’s allowable deductions for the vacation home. Use the IRS approach.

Answer 1

A) Peesonal Use of PAopeaty C3o day) exceeds gt eates of 14 day ) 10' of ental clay Cgo x to7.) day X days Algo Ben tented the vacation home fo£ 15 O& mote So the propeety oald be clesified Rental Coutt approach as Petsonal B) Geoss income 5000 Dedu ction Tax es and Tntegest C3000 +1500) 4500x 3/12) C125 Uilties 800t500) C300 x3 2entalmonths/ and mainten ance 75) 4 month s of use Remaining In corme Depseciation C4000 X3/4) C3000 but deduction limted to availableC2g00 balance of income) 2goo Net income

Total ben's alowable deduction is C125 g 752g00) agamst Rental income of 5000 . Remaining poetion of taxes and Intesest C4500* l125 as Jtemized deduction goo - 3375) is be allowed (C) IRS Appsoach GOSS Income 500O Deduction Taxes and Dtesest C4500x 3/4) (3 375 Remaning 625 lncome 650 Salance income Depseciation (4o00x3/4) 3000 Ccso) but limuted to above balaunce income Net income Total deduction available to Ben is C3a75 taxes and intesest t 975 Utik and mauin tai nance t65o depieciation ageinst gtoss income of 5000 . The emaining Portion of taxes and intesest C4500-3375) 1125 js avalable fot dleduction as temlzed deduction.