Claire and Harry own a house on Hilton Head Island.During the year,Claire and Harry rent the house for 30 days to friends from Texas for $2,000.Claire and Harry use the house a total of 60 days during the year.After making the appropriate allocation of expenses between personal and rental use,the following rental loss was determined:
$$\begin{array} { l r }
\text { Rental income } & \$ 2,000 \
\text { Property taxes } & ( 250 ) \
\text { Mortgage interest } & ( 950 ) \
\text { Repairs and maintenance } & ( 200 ) \
\text { Utilities } & ( 300 ) \
\text { Depreciation } &\underline { ( 400 ) }\
\text { Rental loss } & \$ ( 100 )
\end{array}$$
How should Claire and Harry report the rental income and expenses for the forthcoming year?
I.Report the $100 loss for AGI.II.Only expenses up to the amount of $2,000 rental income may be deducted for the year.
III.Include the $2,000 in gross income,but no deductions are allowed.
IV.Nothing needs to be reported.
A)Only statement I is correct.
B)Only statement II is correct.
C)Statements II and III are correct.
D)Statements III and IV are correct.
E)Statements I and III are correct.

Question

Claire and Harry own a house on Hilton Head Island.During the year,Claire and Harry rent the house for 30 days to friends from Texas for $2,000.Claire and Harry use the house a total of 60 days during the year.After making the appropriate allocation of expenses between personal and rental use,the following rental loss was determined:
$$\begin{array} { l r } 
\text { Rental income } & \$ 2,000 \
\text { Property taxes } & ( 250 ) \
\text { Mortgage interest } & ( 950 ) \
\text { Repairs and maintenance } & ( 200 ) \
\text { Utilities } & ( 300 ) \
\text { Depreciation } &\underline {  ( 400 ) }\
\text { Rental loss } & \$ ( 100 )
\end{array}$$
How should Claire and Harry report the rental income and expenses for the forthcoming year?
I.Report the $100 loss for AGI.II.Only expenses up to the amount of $2,000 rental income may be deducted for the year.
III.Include the $2,000 in gross income,but no deductions are allowed.
IV.Nothing needs to be reported.
A)Only statement I is correct.
B)Only statement II is correct.
C)Statements II and III are correct.
D)Statements III and IV are correct.
E)Statements I and III are correct.

Quizplus · Accepted Answer

Only expenses up to the amount of $2,000 rental income may be deducted for the year because the property is considered a personal residence due to the personal use exceeding the greater of 14 days or 10% of the rental days. Therefore, the rental loss cannot be reported for AGI.

Claire and Harry Own a House on Hilton Head Island