Question

Brady owns a second home that he rents to others. During the year, he used the second home for 50 days for personal use and for 100 days for rental use. Brady collected $20,000 of rental receipts during the year. Brady allocated $7,000 of interest expense and property taxes, $10,000 of other expenses, and $4,000 of depreciation expense to the rental use. What is Brady's net income from the property and what type and amount of expenses will he carry forward to next year, if any

Answer 1

Answer: $0

Step-by-step explanation:

In order for a residence to be classified as a personal residence, one has to have stayed there for more than 10% of the time the property was rented out in one year.

50 days is greater than 10% of 100 days so this is classified as a residential property.

Deductions can therefore be made on rental expenses but only up until the the the amount of the rental income:

= Rental income - Interest expense - Other expenses - Depreciation

= 20,000 - 7,000 - 10,000 - 4,000

= -$1,000

Rental income will therefore be $0.

The $1,000 loss will be carried forward from Depreciation.