Jack and Cheryl own a cabin near Copper Mountain,Colorado.During the year,Jack and Cheryl rent the cabin for 30 days to friends for $1,800.Jack and Cheryl use the cabin a total of 60 days during the year.After making the appropriate allocation of planned expenses between personal and rental use,the following rental loss was determined:
How should Jack and Cheryl report the rental income and expenses for the forthcoming year?
I.Only expenses up to the amount of $1,800 rental income may be deducted for the year.
II.Only depreciation in the amount of $100 may be deducted.
III.The amount of the disallowed depreciation deduction ($300)can be carried forward.
IV.Nothing needs to be reported.

Question

Jack and Cheryl own a cabin near Copper Mountain,Colorado.During the year,Jack and Cheryl rent the cabin for 30 days to friends for $1,800.Jack and Cheryl use the cabin a total of 60 days during the year.After making the appropriate allocation of planned expenses between personal and rental use,the following rental loss was determined:  ​
How should Jack and Cheryl report the rental income and expenses for the forthcoming year?
I.Only expenses up to the amount of $1,800 rental income may be deducted for the year.
II.Only depreciation in the amount of $100 may be deducted.
III.The amount of the disallowed depreciation deduction ($300)can be carried forward.
IV.Nothing needs to be reported.
​

Quizplus · Accepted Answer

Statement I is correct, as rental expenses cannot exceed rental income for the year. 
Statement II is correct, as only the depreciation related to the rental activity can be deducted, and in this case, it is $100. 
Statement III is correct, as the disallowed depreciation can be carried forward to future years. 
Statement IV is incorrect, as rental income and expenses need to be reported on the tax return, even if there is a loss. Therefore, choices A, B, D, and E can be eliminated.

Jack and Cheryl Own a Cabin near Copper Mountain,Colorado