Darius and Chantal own a cabin in Lake Arrowhead,California.During the year,they rented it for 45 days for $10,000 and used it for 12 days for personal use.The house remained vacant for the remainder of the year.The expenses for the house included $9,000 in mortgage interest,$2,000 in property taxes,$1,000 in utilities,$600 in maintenance,and $3,000 in depreciation.What is their net income or loss from their cabin (without considering the passive loss limitation)? Use the IRS method for allocation of expenses.(Round your answer to the nearest whole dollar. )

Question

Quizplus · Accepted Answer

The IRS method for allocation of expenses involves prorating the expenses based on the number of days rented versus the total number of days used (both personal and rental). Here, the cabin was rented for 45 days and used personally for 12 days, totaling 57 days of use. The expenses are $9,000 (mortgage interest) + $2,000 (property taxes) + $1,000 (utilities) + $600 (maintenance) + $3,000 (depreciation) = $15,600. The portion of expenses attributable to rental use is ($15,600 * 45/57). The rental income is $10,000. Subtracting the prorated expenses from the rental income gives the net loss, which is approximately $2,316.

Darius and Chantal Own a Cabin in Lake Arrowhead,California