Please help!! Sally is a professional house painter and is your new tax client.
ID: 2597593 • Letter: P
Question
Please help!! Sally is a professional house painter and is your new tax client. Besides her primary residence in West Hartford, she has a lake/vacation home in eastern Connecticut. In 2017, she rented her lake/vacation home for 9 days for $1,800 and used it for 3.5 months for herself. The expenses that she incurred on the lake home are listed below:
$ 4,100
11,600
2,400
2,000
7,000
Please calculate1.) Sally's rental gain or loss and 2.) the itemized deductions, if any, that she can take on her personal tax return.
Property taxes$ 4,100
Mortgage interest11,600
Maintenance including utilities expenses2,400
Insurance2,000
Depreciation7,000
Explanation / Answer
1. As per Topic No 415 of IRS, if any person has rented his vacation home for less than 15 days in a calender year, then the rental income earned on such vacation home is not required to be reported as income in the personal tax return of that person. As a result, in the given case, Sally is not required to report rental gain or loss in her personal tax return.
2. As per IRS, if the vacation home is used for more than 14 days or 10% of the rent days, then such unit is considered for personal residence for higher of the abover two. In the given case, vacation home is used for personal residence for 105 days and the same days is considered as used for residence purpose. Moreover, since the property is rented for less than 14 days, Sally can deduct expenses of only propety taxes and mortgage interest. No other expense like depreciation, maintenance & insurance can be deducted by Sally.
Itemized Deduction = 4,100 + 11,600 = $15,700