Jenny's modified adjusted gross income (MAGI) is $120,000 a year, and she owns real estate property that generates a rental income of $10,000 annually. If she pays mortgage interest of $4,000 on her property per year, she might be able to write off up to _____ in depreciation.

Question

Jenny's modified adjusted gross income (MAGI) is $120,000 a year, and she owns real estate property that generates a rental income of $10,000 annually. If she pays mortgage interest of $4,000 on her property per year, she might be able to write off up to _____ in depreciation.

Quizplus · Accepted Answer

The amount of depreciation that can be written off on a rental property is determined by the property's cost basis (not the rental income or mortgage interest paid). Assuming the cost basis of the property is $120,000 (equal to Jenny's MAGI), the maximum annual depreciation that can be written off is $4,363. However, because Jenny's rental income exceeds her mortgage interest expense, she may only deduct up to $6,000 in depreciation each year ($10,000 in rental income minus $4,000 in mortgage interest equals $6,000 in net rental income).

Jenny's Modified Adjusted Gross Income (MAGI) Is $120,000 a Year