Question

Charlie purchased a vacation house on February 27, 2018. During 2019, he spent 29 days there and rented it at fair rental price for 137 days. The house was vacant for the remainder of the year. Using the Tax Court method, Charlie's applicable percentage for deductible mortgage interest and real estate tax expenses on Schedule E is __________.

17.47%

37.53%

62.47%

82.53%

Answer 1

Under the Tax Court method, the IRS says, that a person can deduct the mortgage interest and real estate taxes equivalent to the number of days the property was rented divided by the total number of the days in the year.

As can be observed from the question, the property has been rented for 137 days out of the total 365 days in a year. The deductible percentage is:-

=137 days /365 days

=37.53%

Based on the above calculation, the applicable percentage for deductible mortgage interest and real estate tax expenses on Schedule E is Option B - 37.53%.

Option A & Option C is incorrect based on the above calculations.

Option D is incorrect because 82.53% is based on the IRS method of deductibility and hence is incorrect with respect to the above scenario.

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