Mike Owns a House That He Rents Out for $1,000

question 27

Essay

Mike owns a house that he rents out for $1,000 per month.His expenses for the 2018 tax year are as follows: $$\begin{array} { l r } \text { Real estate taxes } & \$ 1,300 \\\text { Mortgage interest } & 4,400 \\\text { Insurance } & 600 \\\text { General repairs } & 640\end{array}$$ Mike bought the property in September of 2009, and his basis for depreciation on the house is $137,500.He uses straight-line depreciation with a 27 ½-year life, so the depreciation on the house is $5,000.Mike does not use a property manager and handles all aspects of the rental activity himself.
a.Calculate Mike's net income or loss from renting the house if his gross rental income is $12,000 ($1,000 × 12 months).
b.Is the income or loss on Mike's rental considered to be active, passive, or portfolio income?

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Definitions:

Expression

A combination of symbols and numbers that represents a mathematical computation or quantity.

Distributive Property

A property indicating that the multiplication of a number by a sum is equal to the sum of the individual multiplications, represented as \(a(b + c) = ab + ac\).

Additive Inverse Property

A principle stating that for any real number, there exists another real number that, when added together, equals zero.

Distributive Property

A property indicating that multiplying a sum by a number gives the same result as multiplying each addend by the number and then adding the products.