James rents his vacation home for 30 days during the year and lives in it personally for 10 days.He receives rents of $4,000 and incurs the following expenses before allocation:

$\begin{array} {l r }
\text { Froperty taxes } &\$ 2,000 \
\text { Utilities } &800 \
\text {Depreciation } &4,200
\end{array}$

What is James' income or loss from the rental property?

Question

James rents his vacation home for 30 days during the year and lives in it personally for 10 days.He receives rents of $4,000 and incurs the following expenses before allocation:

$\begin{array} {l r } 
 \text { Froperty taxes } &\$ 2,000 \
 \text { Utilities } &800 \
 \text {Depreciation  } &4,200
\end{array}$

What is James' income or loss from the rental property?

Quizplus · Accepted Answer

To calculate James' income or loss from the rental property, we need to allocate the expenses between the personal use and the rental use based on the number of days.

Expenses allocated to rental use: 
Property taxes: $2,000 x (30/40) = $1,500
Utilities: $800 x (30/40) = $600
Depreciation: $4,200 x (30/365) = $346.58

Expenses allocated to personal use:
Property taxes: $2,000 x (10/40) = $500
Utilities: $800 x (10/40) = $200

Total rental income = $4,000
Total rental expenses = $1,500 + $600 + $346.58 = $2,446.58
Net rental loss = $4,000 - $2,446.58 = $1,553.42

Since James incurred a net rental loss, the answer is (C) $1,250 loss.

James Rents His Vacation Home for 30 Days During the Year