Colin and Megan own a cabin in the Mammoth Mountains,California.During the year,they rented it for 45 days for $10,000 and used it 12 days for personal use.The expenses for the cabin included $7,000 in mortgage interest,$3,000 in property taxes,$1,200 in utilities,$400 in maintenance,and $3,000 in depreciation.What is their net income or loss from the cabin (without considering the passive loss limitation)? Use the IRS method for allocation of expenses.(Round your answer to the nearest whole number)
A)$0.
B)$1,526 net loss.
C)$7,632 net loss.
D)$10,000 net income.

Question

Quizplus · Accepted Answer

The IRS method for allocation of expenses involves dividing the expenses between rental use and personal use based on the number of days used for each. The total days the cabin was used is 45 (rental) + 12 (personal) = 57 days. The percentage of expenses allocated to rental use is 45/57. The total expenses are $7,000 (mortgage interest) + $3,000 (property taxes) + $1,200 (utilities) + $400 (maintenance) + $3,000 (depreciation) = $14,600. The allocated rental expenses are $14,600 * (45/57) = $11,526 (rounded to the nearest whole number). The rental income is $10,000, so the net loss from the cabin is $11,526 - $10,000 = $1,526.

Colin and Megan Own a Cabin in the Mammoth Mountains,California