Identify the classification of the property. Compute allowable deductions for be
ID: 3311921 • Letter: I
Question
Identify the classification of the property. Compute allowable deductions for beach house and show which approach is chosen. Note any carry forward that may result. Note and deductibility available for personal proportion of expenses including where such deduction if any would be taken. 3. (17 points; 6) Robyn rents her beach house for 60 days and uses it for personal use for 30 days during the year. The rental income is $6,000 and the expenses are as follows: Mortgage interest Real estate taxes Utilities Maintenance Insurance Depreciation (rental part only) $9,000 3,000 2,000 1,000 500 4,000 (a) (3 points) Identify the classification of the property. (b) (10 points) Compute Robyn's allowable deductions for the beach house. (If applicable, you may use either the Court's approach or the IRS approach as long as you indicate which one is used. Do not assume P'll know from your work.) (c) (2 points) Note any carryforward that may result. (d) (2 points) Note any deductibility available for the personal portion of the expenses including where such deduction, if any, would be taken.
Explanation / Answer
a)
Since the property is classified as personal/rental use.
b)
The general rule is that the deductible expenses cannot exceed the gross income. Thus, under the general rule, the deductible expenses would be limited to $6,000.
However, this ceiling does not apply to expenses that otherwise would be deductible as itemized deductions.
Consequently, all of the mortgage interest and real estate taxes can be deducted
$9,000 + $3,000 = $12,000.
Using the IRS approach, total expenses that Robyn can deduct on her tax return associated with the beach house are:
Thus, $12,000 can only deduct regular expenses, and then other expenses only up to income but because
12000 is more than 6000 you can't deduct anything.