Question

Use the following facts to answer problems 61 and 62. Natalie owns a condominium near Cocoa Beach in Florida. This year, she incurs the
following expenses in connection with her condo:
Insurance $1,000

Advertising expense 500

Mortgage interest 3,500

Property taxes 900

Repairs & maintenance 650

Utilities 950

Depreciation 8,500

Assume Natalie uses the Tax Court method of allocating expenses to rental use of the property.

a) What is the total amount of for AGI (rental) deductions Natalie may deduct in the current year related to the condo?

b) What is the total amount of itemized deductions Natalie may deduct in the current year related to the condo?

c) If Natalie’s basis in the condo at the beginning of the year was $150,000, what is her basis in the condo at the end of the year?

d) Assume that gross rental revenue was $2,000 (rather than $10,000). What amount of for AGI deductions may Natalie deduct in the current year related to the condo?

Answer 1

a.
Gross Rental Income	$10,000
Tier-1 Expenses
Advertising Expense=$500
Mortgage Interest= (75/365)X$3500=$719
property Taxes=(75/365)X$900=$185
Total Tier-1 Expense	-$1,404
Balance	$8,596
Tier-2 Expense
Insurance= (75/110)X$1000=$682
Repair & maintainance =(75/110)X$650=$443
Utilities=(75/110)X$950=$648
Less: Total Tier-2 Expense	-$1,773
Balance	$6,823
Tier-3 Expense
Depreciation(75/110)X$8500=$5795	-$5,795
Balance - net Income from Rental of Condo	$1,028
Total for AGIDeduction($1404+$1773+$5795)	$8,972

b. Mortgage Interest (290/365X)X$3500	2781
Real property Tax (290/365)X900	715
Total From AGI Deuction	3496

C. Beginning Basis	$150,000
Less: Depreciation Actuallly Deducted	-$5,795
Total From AGI Deuction	$144,205

d. Natlie is allowd to Deduct all $1404 of the tier-1 Expenses as for AGI Deduction. Natlie is Eligible for this deduction irrespective of the rental income or Loss. Hence N is eligible to Deduct $576 ($2 000-$1404).