Girardo owns a condominium in Key West. During the year, Girardo uses the condo a total of 22 days. The condo is also rented to vacationers for a total of 78 days and generates rental income of $24,000. Girardo incurs the following expenses before allocation:
?
$$\begin{array} { l r }
\text { Mortgage interest } & \$ 8,000 \
\text { Property taxes } & 3,600 \
\text { Utilities } & 4,000 \
\text { Insurance } & 2,400 \
\text { Depreciation } & 22,000
\end{array}$$
The amount of depreciation that Girardo may deduct with respect to the rental property is
A)$7,300
B)$9,960
C)$14,040
D)$17,160
E)$22,000

Question

Girardo owns a condominium in Key West. During the year, Girardo uses the condo a total of 22 days. The condo is also rented to vacationers for a total of 78 days and generates rental income of $24,000. Girardo incurs the following expenses before allocation:
?
$$\begin{array} { l r } 
\text { Mortgage interest } & \$ 8,000 \
\text { Property taxes } & 3,600 \
\text { Utilities } & 4,000 \
\text { Insurance } & 2,400 \
\text { Depreciation } & 22,000
\end{array}$$
The amount of depreciation that Girardo may deduct with respect to the rental property is
A)$7,300
B)$9,960
C)$14,040
D)$17,160
E)$22,000

Quizplus · Accepted Answer

To calculate the depreciation on the rental property, we need to use the following formula:
Depreciation = (Property Value - Land Value) / Useful Life

Property Value = $400,000
Land Value = $80,000
Useful Life = 27.5 years

Depreciation = ($400,000 - $80,000) / 27.5
Depreciation = $12,727.27

Girardo can only deduct depreciation for the portion of the year that the property was used as a rental. In this case, the property was rented for 78 days out of a total of 365 days in the year, which is about 21% of the year. Therefore, Girardo can deduct 21% of the depreciation amount:

Depreciation deduction = $12,727.27 x 21%
Depreciation deduction = $2,632.73

Therefore, the correct answer is B) $9,960.

Girardo Owns a Condominium in Key West The Amount of Depreciation That Girardo May Deduct with Respect