Mike owns a house that he rents out for $1,000 per month. His expenses for the 2014 tax year are as follows:
Mike bought the property in September of 1996, and his basis for depreciation on the house is $137,500. He uses straight-line depreciation with a 27 ½-year life, so the depreciation on the house is $5,000. Mike does not use a property manager and handles all aspects of the rental activity himself.

a.Calculate Mike's net income or loss from renting the house if his gross rental income is $12,000 ($1,000 × 12 months).
b.Is the income or loss on Mike's rental considered to be active, passive, or portfolio income?

Question

Mike owns a house that he rents out for $1,000 per month. His expenses for the 2014 tax year are as follows:
Mike bought the property in September of 1996, and his basis for depreciation on the house is $137,500. He uses straight-line depreciation with a 27 ½-year life, so the depreciation on the house is $5,000. Mike does not use a property manager and handles all aspects of the rental activity himself.
  
a.​Calculate Mike's net income or loss from renting the house if his gross rental income is $12,000 ($1,000 × 12 months).
b.Is the income or loss on Mike's rental considered to be active, passive, or portfolio income?

Quizplus · Accepted Answer

The Answer of Mike owns a house that he rents out for $1,000 per month. His expenses for the 2014 tax year are as follows:
Mike bought the property in September of 1996, and his basis for depreciation on the house is $137,500. He uses straight-line depreciation with a 27 ½-year life, so the depreciation on the house is $5,000. Mike does not use a property manager and handles all aspects of the rental activity himself.
  
a.​Calculate Mike's net income or loss from renting the house if his gross rental income is $12,000 ($1,000 × 12 months).
b.Is the income or loss on Mike's rental considered to be active, passive, or portfolio income?

Mike Owns a House That He Rents Out for $1,000