Question

Alexa owns a condominium near Cocoa Beach in Florida. This year, she incurs the following expenses in connection with her condo:

Insurance	$	2,000
Mortgage interest		6,500
Property taxes		2,000
Repairs & maintenance		1,400
Utilities		2,500
Depreciation		14,500

During the year, Alexa rented out the condo for 100 days. She did not use the condo at all for personal purposes during the year. Alexa’s AGI from all sources other than the rental property is $200,000. Unless otherwise specified, Alexa has no sources of passive income.

Assume that in addition to renting the condo for 100 days, Alexa uses the condo for 8 days of personal use. Also assume that Alexa receives $30,000 of gross rental receipts and her itemized deductions exceed the standard deduction before considering expenses associated with the condo. Answer the following questions:

Note that the home is considered to be a nonresidence with rental use.

b. What is the total amount of from AGI deductions relating to the condo that Alexa may deduct in the current year? Assume she uses the IRS method of allocating expenses between rental and personal days. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.).

Would Alexa be better or worse off after taxes in the current year if she uses the Tax Court method of allocating expenses? Better off OR Worse off

Answer 1

Solution:

b)

Alexa may deduct the personal-use portion of property taxes since they are deductible without regard to rental income. However, she is not allowed to deduct the mortgage interest related to personal-use days because the property no longer qualifies as a personal residence.

Her deduction for propert taxes is caluclates as follows:

Real propert taxes = (8/108)*$2,000

=$148.

Note that Alexa would be able to deduct the taxes whether she itemized or not .

c)

Would Alexa be better or worse off after taxes in the current year if she uses the Tax Court method of allocating expenses?

Better off.

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