Abby owns a condominium in the Great Smokey Mountains. During the year, Abby uses the condo a total of 21 days. The condo is also rented to tourists for a total of 79 days and generates rental income of $12,500. Abby incurs the following expenses: $$\begin{array} { | l | r | }
\hline \text { Expense } & { \text { Amount } } \
\hline \text { Mortgage interest } & \$ 4,100 \
\hline \text { Property taxes } & 1,900 \
\hline \text { Utilities } & 2,200 \
\hline \text { Insurance } & 1,200 \
\hline \text { Depreciation } & 10,000 \
\hline
\end{array}$$ Using the IRS method of allocating expenses, the amount of depreciation that Abby may take with respect to the rental property will be

Question

Abby owns a condominium in the Great Smokey Mountains. During the year, Abby uses the condo a total of 21 days. The condo is also rented to tourists for a total of 79 days and generates rental income of $12,500. Abby incurs the following expenses: $$\begin{array} { | l | r | } 
\hline \text { Expense } & { \text { Amount } } \
\hline \text { Mortgage interest } & \$ 4,100 \
\hline \text { Property taxes } & 1,900 \
\hline \text { Utilities } & 2,200 \
\hline \text { Insurance } & 1,200 \
\hline \text { Depreciation } & 10,000 \
\hline
\end{array}$$ Using the IRS method of allocating expenses, the amount of depreciation that Abby may take with respect to the rental property will be

Quizplus · Accepted Answer

The IRS method of allocating expenses is based on the ratio of rental days to total days of use. In this case, the condo was rented for 79 days and Abby used it for 21 days, for a total of 100 days. Therefore, the ratio of rental days to total days of use is 79/100. This means that Abby may deduct 79% of the depreciation expense, which is $10,000 x 79% = $7,900.

Abby Owns a Condominium in the Great Smokey Mountains Using the IRS Method of Allocating Expenses, the Amount of the Year