Question

Kayla owns a home on the beach in Daytona. She lives in the house for most of the year but leaves town during the popular motorsports race that comes through every year. During that time, she rents her home out for 14 days to race fans for $5,000. Which of the following is true?

a. Kayla's rental income is subject to taxation.
b. Kayla's rental income is tax-exempt.
c. Kayla must report the rental income but can deduct related expenses.
d. Kayla is not allowed to rent out her home.

Answer 1

Kayla's rental income for renting out her home for 14 days to race fans is tax-exempt according to IRS regulations, as the home is rented out fewer than 15 days in a year. Therefore, this income does not need to be reported on her tax return, and no expenses can be deducted.

Step-by-step explanation:

The situation described involving Kayla renting out her home for a short period relates to the tax treatment of rental income. According to the Internal Revenue Service (IRS) regulations, if you rent out a dwelling for fewer than 15 days in a year, that rental income is generally not taxable.

In Kayla’s case, since she rents her home out for 14 days, her rental income would be tax-exempt, which correlates with option b. Kayla would not need to report the income on her tax return and cannot deduct any expenses as it pertains to the rental.

It is important to remember that this information is accurate as of the current knowledge cutoff date, and tax laws can change, hence always consult the current year's tax guidance or a tax professional for the most up-to-date information.

The correct answer is b. Kayla's rental income is tax-exempt.