V owns a small beach-front cottage (her second home), which she rented out during the past year.She is actively involved in this rental activity, which is her only venture of this type.She rented the cottage for 200 days during the year for $10,000.She also used it personally for 18 days.During the year, expenses allocable to the rental activity were, interest $5,000, taxes $4,000, maintenance and insurance $1,000, and depreciation expenses allocable to the cottage of $4,000.For the year, her adjusted gross income was $80,000.With respect to the expenses attributable to the rental, V may

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V may deduct all expenses directly related to the rental activity, which includes interest, taxes, maintenance and insurance, and depreciation expenses allocable to the cottage. The total expenses amount to $14,000 ($5,000 + $4,000 + $1,000 + $4,000). Since V actively participates in the rental activity, she may deduct up to $25,000 in rental real estate losses against her other income, subject to certain limitations. However, since her rental income of $10,000 exceeds her rental expenses of $14,000, she may only deduct the actual expenses of $14,000.

V Owns a Small Beach-Front Cottage (Her Second Home), Which