Brady owns a second home that he rents to others. During the year, he used the second home for 50 days for personal use and for 100 days for rental use. Brady collected $20,000 of rental receipts during the year. Brady allocated $7,000 of interest expense and property taxes, $10,000 of other expenses, and $4,000 of depreciation expense to the rental use. What is Brady's net income from the property and what type and amount of expenses will he carry forward to next year, if any?
A)$0 net income. $1,000 depreciation expense carried forward to next year.
B)($1,000)net loss. $0 expenses carried over to next year.
C)$0 net income. $1,000 of other expense carried over to next year.
D)$0 net income. $1,000 of interest expense and property taxes carried over to next year.

Question

Quizplus · Accepted Answer

Brady's net income from the property is calculated by subtracting the allocated expenses from the rental receipts. The total expenses allocated to rental use are $7,000 (interest expense and property taxes) + $10,000 (other expenses) + $4,000 (depreciation) = $21,000. Since he collected $20,000 in rental receipts, he can deduct expenses up to that amount, leaving him with $0 net income. The remaining $1,000 of depreciation expense cannot be deducted this year and is carried forward to next year.

Brady Owns a Second Home That He Rents to Others