Patrick owns a home on the beach in Daytona.He lives in the house for most of the year but leaves town during the popular motor sports race that comes through every year.During that time, he rents his home out for 3 weeks to race fans for $5,000.Which of the following is true?
A)Because Patrick rents the house for such a short period of time, the rental income is not taxable but he may deduct a percentage of expenses such as utilities and depreciation on the home.
B)Patrick did not rent the house for a long enough period of time to deduct a percentage of expenses such as utilities and depreciation on the home.The rental income he receives is taxable.
C)Because Patrick rented the home for more than 14 days, he must report the income.He is also allowed to deduct a percentage of expenses such as utilities and depreciation to the extent of the income.
D)If you live in your house for more than 50 percent of the year, then it is treated as a personal residence and you cannot deduct any expenses such as utilities and depreciation on the home.
E)None of the above is true.

Question

Quizplus · Accepted Answer

According to the IRS, if a homeowner rents out their home for more than 14 days in a year, they must report the rental income on their tax return. However, they are also allowed to deduct a percentage of expenses such as utilities and depreciation to the extent of the rental income. Since Patrick is renting out his house for 3 weeks (21 days), he would have to report the rental income of $5,000 and may deduct a percentage of expenses. Choice A is incorrect because all rental income is taxable, regardless of the length of the rental period. Choice B is incorrect because as mentioned above, Patrick can deduct a percentage of expenses. Choice D is incorrect because although the 50% rule is true, it does not apply to rental income. Choice E is incorrect because at least one of the choices is true.

Patrick Owns a Home on the Beach in Daytona