Tom and RoseMary own a cabin near Stowe,Vermont.During the current year the cabin is rented for 31 days for $1,800.Tom and RoseMary used the cabin a total of 12 days during the year.After making the appropriate allocation of expenses between personal and rental use,the following rental loss was determined:

How should Tom and RoseMary report the rental income and expenses for the current year?
A)Include the $1,700 in gross income,but no deductions are allowed.
B)Report the $300 loss for AGI.
C)Only expenses up to the amount of $1,700 rental income may be deducted in the current year.
D)Report the interest ($950)and taxes ($150)as itemized deductions and the other expenses for AGI.
E)No reporting for the rental activity should be reported.

Question

Tom and RoseMary own a cabin near Stowe,Vermont.During the current year the cabin is rented for 31 days for $1,800.Tom and RoseMary used the cabin a total of 12 days during the year.After making the appropriate allocation of expenses between personal and rental use,the following rental loss was determined:
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How should Tom and RoseMary report the rental income and expenses for the current year?
A)Include the $1,700 in gross income,but no deductions are allowed. 
B)Report the $300 loss for AGI. 
C)Only expenses up to the amount of $1,700 rental income may be deducted in the current year. 
D)Report the interest ($950)and taxes ($150)as itemized deductions and the other expenses for AGI. 
E)No reporting for the rental activity should be reported.

Quizplus · Accepted Answer

Tom and RoseMary can report the $300 rental loss for AGI since they used the cabin for less than 14 days or 10% of the total rental days. They cannot deduct any expenses beyond the $1,800 rental income since they did not actively participate in the rental activity. The interest and taxes can be reported as itemized deductions on Schedule A.

Tom and RoseMary Own a Cabin near Stowe,Vermont