Question

Darren owns a building (at 200 Tobacco Road, Urbana, MN) rents it out under a commercial lease for the whole year, for part of the building. The commercial tenant pays its own share of maintenance and utilities. The tenant pays Darren $2,400 per month for the space. The Tenant also paid Darren $1,125 in October for the tenant’s share of taxes. Darren’s property taxes for the whole rental building is $3,500 (already mentioned) but Darren has not rented out the whole building. Most of the building is unoccupied. Darren has been trying to rent it out since then, by listing it, advertising it and by signage. The utilities and phone to the 1600 square feet are separately metered, so the tenant pays those amounts directly to Charter and Xcel. The tenant is responsible for its own janitorial and maintenance fees. According to your depreciation schedules, this year’s depreciation is $7,692 MACRS. Use form 4562 page 1 to properly report the depreciation. Darren’s additional rental expenses are: Mortgage interest 10,000 Utilities 3,750 Maintenance and janitorial 3,000 Insurance 1,000 He filed all required 1099s. how do you treat for tax purpose? which form will be used to post it.?

Answer 1

Tenant rental taxes as a percentage of total rental taxes is only 32.1429%

=1125/3500*100=32.1429

Darren expenses are

Mortgage interest	10000
Utilities	3750
Maintenance and janitorial	3000
Insurance	1000
Depreciation	7692
Total	25442

Allowable expenses is 32.1429% only

=25442*0.321429= 8177

Rental income =2400*12=28800

Net income (28800-8177=20622)

When you purchase property to use in your business, the IRS doesn't allow you to claim the full cost as a business deduction in the first year. However, you can deduct a portion of your costs each year by claiming a depreciation deduction and reporting it on IRS Form 4562, Depreciation and Amortization