Question

Lynn and Bruce own a vacation cottage on the lakeside. They rented the cottage last year for 60 days, and used it for themselves and their family for 30 days. They had the following income and expenses for the cottage. Rental Income $22,000 Real Estate Taxes $6,000 Mortgage Interest Paid $9,000 Mortgage Principal Repaid $5,000 Electric, Phone, gas $4,000 Repairs $1,000 Insurance $1,000 Depreciation $8,000 Homeowners Assn. Fees $1,000 For real estate taxes and mortgage interest, there are two alternative approaches on how to allocate these, the "tax court approach" and the "IRS approach." Using the "IRS approach," what are the total expenses that they can deduct related to the lakeside cottage rental? Show your calculations.

Answer 1