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:
$$\begin{array} { l r }
\text { Rental income } & \$ 1,800 \
\text { Property taxes } & ( 250 ) \
\text { Mortgage interest } & ( 950 ) \
\text { Repairs and maintenance } & ( 200 ) \
\text { Utilities } & ( 300 ) \
\text { Depreciation } & \underline { ( 400 )} \
\text { Rental loss } & \$ ( 300 )
\end{array}$$
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:
$$\begin{array} { l r } 
\text { Rental income } & \$ 1,800 \
\text { Property taxes } & ( 250 ) \
\text { Mortgage interest } & ( 950 ) \
\text { Repairs and maintenance } & ( 200 ) \
\text { Utilities } & ( 300 ) \
\text { Depreciation } & \underline { ( 400 )} \
\text { Rental loss } & \$ ( 300 )
\end{array}$$
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 because rental income can only offset up to the amount of rental expenses for the year.

Statement II is correct because only the portion of depreciation allocable to the rental period can be deducted, which in this case is $100 ($400 divided by 90 rental and personal use days).

Statement III is correct because disallowed depreciation can be carried forward to future years when the property generates rental income.

Statement IV is incorrect because rental income, expenses, and the resulting rental loss must be reported on Jack and Cheryl's tax return.

Jack and Cheryl Own a Cabin near Copper Mountain,Colorado How Should Jack and Cheryl Report the Rental Income and Year,Jack