Question

Martha began renting her entire main home at fair rental value on May 1, 2008. When she converted the house to rental property, the adjusted basis was $205,000, which included $18,000 of value attributable to the land. The fair market value at the time of conversion was $195,000, including land value of $10,000. In 2019, Martha received $19,200 in rental income from the property. Her expenses for the year included: yard maintenance, $480; repairs, $850; property insurance, $2520; mortgage interest, $8960; real estate tax, $2750. What is Martha's loss on the rental property?

A) $3,100
B) $3,500
C) $4,000
D) $4,500

Answer 1

To find Martha's loss on the rental property, the rental income must be subtracted from the expenses. The calculated result of $19,200 in rental income minus $14,560 in expenses equals a gain of $4,640, not a loss as per the given options. Additional expenses or depreciation would be needed to determine a loss.

Step-by-step explanation:

To calculate Martha's loss on the rental property, we need to subtract her total expenses from the rental income she received in 2019. The expenses include: yard maintenance, repairs, property insurance, mortgage interest, and real estate tax. Adding up all the expenses: $480 (yard maintenance) + $850 (repairs) + $2520 (property insurance) + $8960 (mortgage interest) + $2750 (real estate tax) gives us a total of $14,560 in expenses.

Now, we subtract the total expenses from the rental income Martha received: $19,200 (rental income) - $14,560 (expenses) = $4,640. However, since the options provided only include losses, and $4,640 indicates a gain, there might be a mistake in calculation or the provided options. Considering this discrepancy, it is advised to double-check the figures and calculations.

If there is indeed supposed to be a loss

, then we would need to add in depreciation or other expenses that aren't listed to turn the gain into a loss. Without additional information, we cannot accurately answer this question with the options provided.