Question

Insurance $ 3,700 Mortgage interest Property taxes Repairs & maintenance 9, 650 4, 650 1,090 2,700 17,600 Utilities Depreciation During the year, Alexa rented out the condo for 120 days. Alexa's AGI from all sources other than the rental property is $200,000. Unless otherwise specified, Alexa has no sources of passive income. Assume that in addition to renting the condo for 120 days, Alexa uses the condo for eight days of personal use. Also assume that Alexa receives $48,500 of gross rental receipts and her itemized deductions exceed the standard deduction before considering expenses associated with the condo. Answer the following questions: (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.) Note that the home is considered to be a nonresidence with rental use Would Alexa be better or worse off after taxes in the current year if she uses the Tax Court method of allocating expenses? O Better off O Worse off 4 of 5 <Prev Next 1855-723-6

Answer 1

The tax court method is less favorable in this circumstance because it allocates less interest expense to the rental activity and more to personal use. The interest expense allocated to personal use however does not qualify for an interest deduction because the taxpayer does not meet the minimum amount of personal use required for the deduction. By using the tax court method any mortgage interest allocated to the personal use days generates no tax benefit. Also since this is primarily rental property the taxpayer may deduct expenses in excess of income from the property. So, the taxpayer may not be as concerned about allocating more taxes to the rental property because doing so does not limit the taxpayers ability to deduct other expenses as it might with mixed-use property. However that a loss may not be immediately deductible due to the passive activity rules.

Answer would be Better off

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