Claire and Harry Own a House on Hilton Head Island

question 43

Multiple Choice

Claire and Harry own a house on Hilton Head Island.During the year,Claire and Harry rent the house for 30 days to friends from Texas for $2,000.Claire and Harry use the house a total of 60 days during the year.After making the appropriate allocation of expenses between personal and rental use,the following rental loss was determined:
$$\begin{array} { l r } \text { Rental income } & \$ 2,000 \\\text { Property taxes } & ( 250 ) \\\text { Mortgage interest } & ( 950 ) \\\text { Repairs and maintenance } & ( 200 ) \\\text { Utilities } & ( 300 ) \\\text { Depreciation } & ( 400 ) \\\text { Rental loss } & \$ ( 100 ) \end{array}$$
How should Claire and Harry report the rental income and expenses for the forthcoming year?
I.Report the $100 loss for AGI.
II.Only expenses up to the amount of $2,000 rental income may be deducted for the year.
III.Include the $2,000 in gross income,but no deductions are allowed.
IV.Nothing needs to be reported.

• A)Only statement I is correct.
• B)Only statement II is correct.
• C)Statements II and III are correct.
• D)Statements III and IV are correct.
• E)Statements I and III are correct.

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Definitions:

Halo Effect

A cognitive bias where a positive impression in one area influences a person's perception in other areas.

Bottom-up Processing

A way of processing information where perception starts with an analysis of the basic elements and builds up to a complete perception.

Self-relevant

Pertaining to information or stimuli that have personal significance to an individual, often influencing attention, perception, and memory processes.

Downward Counterfactual

An imagined alternative in which the outcome is worse than what actually happened.