Katy owns a second home. During the year, she used the home for 20 personal use days and 50 rental days. Katy allocates expenses associated with the home between rental use and personal use. Katy did not incur any expenses to obtain tenants. Which of the following statements is correct regarding the tax treatment of Katy's income andexpenses from the home?

Question

Quizplus · Accepted Answer

A) Katy must include the rental receipts in gross income as they are taxable. She can also deduct the expenses allocated to the rental use of the home for AGI.
B) This is correct. Katy's deductible expenses for the year cannot exceed the amount of her total rental receipts. If the rental expenses exceed the rental income, she cannot report a loss from the rental property.
C) Katy can deduct from AGI interest expense and property taxes associated with the home not allocated to the rental use of the home. This is also correct.
Therefore, all three statements are correct.

Katy Owns a Second Home