Question

Dillon rented his personal residence at Lake Tahoe for 14 days while he was vacationing in Ireland. He resided in the home for the remainder of the year. Rental income from the property was $6,200. Expenses associated with use of the home for the entire year were as follows:

Real property taxes $ 3,050
Mortgage interest 12,125
Repairs 1,325
Insurance 1,510
Utilities 5,040
Depreciation 12,400

What effect does the rental have on Dillon’s AGI
Effect of rental activity on Dillon's AGI

Answer 1

Dillon rented his property for less than 15 days, so the $6,200 rental income does not need to be reported for tax purposes and has no effect on his AGI. Expenses cannot be deducted against this rental income either.

Step-by-step explanation:

Regarding the effect of rental activity on Dillon's Adjusted Gross Income (AGI), it's important to note that the tax treatment for rental of a personal residence for less than 15 days during the tax year is unique. According to the Internal Revenue Service (IRS) guidelines, if a property is rented out for fewer than 15 days, the rental income does not have to be reported, and consequently, the associated expenses cannot be deducted.

Therefore, Dillon's income of $6,200 from renting out his residence for 14 days does not need to be included in his AGI, and the rental will have no effect on it. All the listed expenses (real property taxes, mortgage interest, repairs, insurance, utilities, depreciation) are considered personal expenses and are not deductible against the rental income since it is not reported. The expenses may, however, be partially deductible if they qualify as itemized deductions on the personal portion, such as mortgage interest and property taxes.