Colin and Megan own a cabin in the Mammoth Mountains,California.During the year,they rented it for 45 days for $10,000 and used it 12 days for personal use.The expenses for the cabin included $7,000 in mortgage interest,$3,000 in property taxes,$1,200 in utilities,$400 in maintenance,and
$3,000 in depreciation.What is their net income or loss from the cabin without considering the passive loss limitation)? Use the IRS method for allocation of expenses.Round your answer to the nearest whole number.)

Question

Quizplus · Accepted Answer

Using the IRS method for allocation of expenses, the total expenses for the cabin would be $14,600 (mortgage interest + property taxes + utilities + maintenance + depreciation). Since Colin and Megan rented the cabin for 45 days and used it for personal use for 12 days, the expenses would be allocated as follows: 
Rental use: ($14,600/365) x 45 = $1,840 
Personal use: ($14,600/365) x 12 = $488 
Therefore, the total expenses allocated to rental use would be $9,160 ($7,320 + $1,200 + $400 + $240). 
Their rental income was $10,000, so their net income from the rental activity is $840 ($10,000 - $9,160). Subtracting the allocated personal use expenses from the net rental income gives a net loss of $1,348 ($840 - $488). Rounded to the nearest whole number, their net loss would be $1,526.

Colin and Megan Own a Cabin in the Mammoth Mountains,California