Kyle purchased a large lot on a lake in anticipation of building his home there within 3 years. During the current year, Kyle paid $650 in property taxes and $2,500 of interest on the demand loan he obtained to purchase the lot. January to March he rented out the lot to a local snowmobile club for $1,500. Which of the following statements is correct?

Question

Quizplus · Accepted Answer

Kyle can deduct the $650 of property taxes paid because property taxes are deductible expenses for rental property. Kyle can also deduct the portion of interest paid that relates to the time the lot was rented out (January to March). The rental income received is considered rental income and offsets the expenses. As Kyle only rented out the lot for three months of the year, he can deduct 3/12 (or 25%) of the interest paid for the year, which is $2,500 x 25% = $625. Therefore, Kyle can deduct $650 + $625 = $1,275 in total.

Kyle Purchased a Large Lot on a Lake in Anticipation