Acc547 W4 Essay

592 Words3 Pages
Use the following facts to answer problems 60–62. Alexa owns a condominium near Cocoa Beach in Florida. This year, she incurs the following expenses in connection with her condo: Insurance $2,000 Mortgage interest 6,500 Property taxes 2,000 Repairs & maintenance 1,400 Utilities 2,500 Depreciation 14,500 During the year, Alexa rented out the condo for 100 days. She did not use the condo at all for personal purposes during the year. Alexa’s AGI from all sources other than the rental property is $200,000. Unless otherwise specified, Alexa has no sources of passive income. 61. (LO4) Assuming Alexa receives $20,000 in gross rental receipts, answer the following questions: a. What effect does the rental activity have on her AGI for the year? Since Alexa did not use the property for personal residence and he rented it for more than 100 days, the rental deductions are all deducted for AGI as below: Gross rental receipt: $20,000 Less: Insurance ($2,000) Mortgage interest ($6,500) Property taxes ($2,000) Repairs & maintenance ($1,400) Utilities ($2,500) Depreciation ($14,500) Net rental receipt: ($8,900) AGI: $200,000- $8,900 = $191,100 b. Assuming that Alexa’s AGI from other sources is $90,000, what effect does the rental activity have on Alexa’s AGI? Alexa makes all decisions with respect to the property. Since Alexa is making all the decisions with respect to the property, under the real estate exception, she is considered an active owner for a rental property. Active participant in the rental activity are allowed to deduct up to $25,000 of rental loss from their personal income. Since Alexa’s AGI is less than $100,000, she can deduct the whole amount of $8,900 as an ordinary deduction from her current year income. $90,000 - $8,900 = $81,100

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