Question

A taxpayer may prefer to use the IRS allocation method over the Tax Court method when they are reporting a net profit on a vacation rental property because the IRS method __________.

A. Does not limit deductible rental expenses to rental income.
B. Enables the taxpayer to deduct a greater amount of expenses on their Schedule A.
C. Generally lowers the taxpayer's adjusted gross income.
D. Uses days of rental use to total days of ownership in the year to determine business-use percentage.

Answer 1

The tax court method uses the ratio of days rented divided by the number of days in the year

The IRS Method says that where a vacation home is treated as used as a residence, all expenses are apportioned between rental and personal use based on number of days used for each purpose.

So the answer C. Generally lowers tax payers adjusted total income

because tax court method divides with year where as IRS method uses total number of used days only, so the deduction will be high compared to tax court method that generally lowers gross total income.

thank you.....