Katy Owns a Second Home

question 22

Multiple Choice

Katy owns a second home. During the year, she used the home for 20 personal use days and 50 rental days. Katy allocates expenses associated with the home between rental use and personal use. Katy did not incur any expenses to obtain tenants. Which of the following statements is correct regarding the tax treatment of Katy's income andexpenses from the home?

• A) Katy includes the rental receipts in gross income and deducts the expenses allocated to the rental use of the home for AGI.
• B) Assuming Katy's rental receipts exceed the interest expense and property taxes allocated to the rental use, Katy's deductible expenses for the year may not exceed the amount of her rental receipts (she may not report a loss from the rental property).
• C) Katy deducts from AGI interest expense and property taxes associated with the home not allocated to the rental use of the home.
• D) All of the above statements are correct.

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Definitions:

Directing

The process of guiding, leading, and motivating employees to achieve organizational goals.

Goals and Objectives

Targets and outcomes that an organization or individual aims to achieve within a specific timeframe.

Period Costs

Period costs are expenses that are not directly tied to the production process and are expensed in the period they are incurred.

Selling Expenses

Costs incurred directly and indirectly in selling products or services, including commissions, advertising, and salesperson salaries.