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Jeff began renting out the home and receiving rental income March 1st
Jeff began renting out the home and receiving rental income March 1st. The renter vacated June 30th after 122 days and Annie, the daughter of Jeff's best friend Roy, needed a place to live for July and August (62 days). He decided to rent to Annie at less than FRV, just enough to pay utilities. Jeff vacationed there in September (30 days) and rented it out at FRV for the rest of the year (92 days). Jeffs total property expenses for the rental home were as follows: For the year Mortgage interest Real estate taxes Insurance Repairs/ maintenance Utilities Mar - Jun; Sept. - Dec. July - Aug. (Annie's stay) $ 9,840 $ 1,950 $ 768 $ 1,710 $ 2,400 $ 600 What is Jeffs deductible amount for rental expenses for the tax year? a) $ 9,823 b) $10,423 c) $ 7,423 d) $17,268
Expert Solution
Answer: b. 10423
Calculations:
Period for which Home was rented at FRV= 214 days (122 days + 92 days)
Period for which Home was vacated or rented less than FRV= 151 days.
Proportionate Expenses for the period on which property was rented be only allowed:
Mortagage Interest + Real estate Taxes + Insurance + Repair and Maintenance
$ 9840+ $ 1950 + $ 760+ $ 1710
= $ 14268
Proportionate expense for 214 days= ($ 14268/ 365) Multiply 214 days
= $ 8323
Also utility expenses for the Mar-June; Sep- Dec exluding september month to be allowed for deductible as expense.
Total Utility expense= $ 2400
Total number of Months= 8 months
Per month utility expenses= $ 300
Therfore for Seven months (excluding september month)= it would be around $ 2100
Total deductibel expense= $ 8323 + $ 2100
$ 10423
Notes:
Following are the most common rental expenses:
. • Advertising. • Auto and travel expenses. • Cleaning and maintenance. • Commissions. • Depreciation. • Insurance. • Interest (other). • Legal and other professional fees. • Local transportation expenses. • Management fees. • Mortgage interest paid to banks, etc. • Points. • Rental payments. • Repairs. • Taxes. • Utilities.
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