Hugh and Mary own a cabin in Big Bear that they rented for 45 days at $4,500.They used the cabin for personal use for 30 days during the year.The allocated expenses related to the cabin of $6,000 resulted in a net loss of $1,500 for this rental activity.What is the proper tax treatment of these amounts by Hugh and Mary?

Question

Quizplus · Accepted Answer

Hugh and Mary should report the rental income and related expenses on Schedule E of their tax return. Since the rental activity resulted in a net loss, the expenses cannot exceed the income. They can still deduct the maximum amount of expenses allowed, but the net loss cannot be used to offset other income on their tax return. Personal use of the cabin does not need to be reported.

Hugh and Mary Own a Cabin in Big Bear That