Robert and Melissa own a home in Big Bear Lake,California.During the year,they rented it for 55 days for $11,000 and used it for 12 days for personal use.The expenses for the house included $12,000 in mortgage interest,$2,000 in property taxes,$1,000 in utilities,$600 in maintenance,and $4,000 in depreciation.What is their 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 number)

Question

Quizplus · Accepted Answer

First, we need to allocate the expenses between rental and personal use based on the number of days of each.

Expenses allocated to rental use:
Mortgage interest: $12,000 x 55 / 67 = $9,863
Property taxes: $2,000 x 55 / 67 = $1,644
Utilities: $1,000 x 55 / 67 = $820
Maintenance: $600 x 55 / 67 = $492
Depreciation: $4,000 x 55 / 67 = $3,311

Total expenses allocated to rental use: $16,130

Expenses allocated to personal use:
Mortgage interest: $12,000 x 12 / 67 = $2,139
Property taxes: $2,000 x 12 / 67 = $358

Total expenses allocated to personal use: $2,497

Rental income: $11,000
Rental expenses: $16,130
Net rental loss: -$5,130

Since their rental expenses exceed their rental income, they have a net rental loss of $5,130. This loss can be used to offset other passive income, or carried forward to future years.

Robert and Melissa Own a Home in Big Bear Lake,California