Question

John owns a second home in Palm Springs, California. During the year he rented the home for $4,000 for 36 days and used the house for 14 days during the summer. The house remained vacant during the remainder of the year. The expenses for the home included $5,000 in mortgage interest, $600 in property taxes, $900 for utilities and maintenance, and $3, 500 of depreciation. What is John's deductible rental loss, before considering the passive loss limitations? $200 $875 $3, 200 $3, 500 $0

Answer 1

Answer:

Option (C) is correct.

Explanation:

Total expenses:

= mortgage interest + property tax + utilities and maintenance + Depreciation expense

= $5,000 + $600 +  $900 + $3,500

= $10,000

Proportionate rental expenses = Total expenses × $\frac{36\ days}{(36 + 14) days}$

Proportionate rental expenses = 10,000 × $\frac{36\ days}{(36 + 14) days}$

= $7,200

Rental Loss = Rental Income - Proportionate rental expenses

                   = $4,000 - $7,200

                   = -($3,200)