Question

Lester rents his vacation home for 6 months and lives in the home during the other 6 months of 2018. The gross rental income from the home is $4,500. For the entire year, real estate taxes are $800, interest is $3,000, utilities and maintenance expenses are $2,200, and depreciation expense on the entire home would be $4,000. What is Lester's allowable net loss from renting his vacation home?

Answer 1

$ 500

Explanation:

Data provided:

Gross rental income from the home = $ 4,500

Real estate taxes for the year = $ 800

Interest per year = $ 3,000

Utilities and maintenance expenses = $ 2,200

Depreciation expense = $ 4,000

Now, for 6 months

Real estate taxes for the year = $ 800 × 0.5 = $ 400 (0.5 as the for half a year i.e 6 months)

Interest per year = $ 3,000 × 0.5 = $ 1500

Utilities and maintenance expenses = $ 2,200 × 0.5 = $ 1,100

Depreciation expense = $ 4,000 × 0.5 = $ 2,000

Thus,

Total expenses for 6 months = $ 400 + $ 1500 + $ 1,100 + $ 2,000 = $ 5000

Therefore,

Net loss from renting his vacation home = Total expenses - Gross income

or

Net loss from renting his vacation home = $ 5000 - $ 4500 = $ 500