Mike and Pam Own a Cabin near Teluride,Colorado

question 128

Multiple Choice

Mike and Pam own a cabin near Teluride,Colorado.In the current year the cabin was rented for 8 days to friends.Mike and Pam used the cabin a total of 82 days during the same year.After allocating the expenses between personal and rental use,the following rental loss was determined: ​
How should Mike and Pam report the rental income and expenses for last year?

• A)Report the $100 loss for AGI.
• B)Include the $700 in gross income, but no deductions are allowed.
• C)Only expenses up to the amount of $700 rental income may be deducted.
• D)Report the interest ($300) and taxes ($250) as itemized deductions and the other expenses for AGI.
• E)No reporting for the rental activity is necessary.

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Definitions:

Double Declining-Balance Depreciation

A method of accelerated depreciation which doubles the rate at which an asset’s book value depreciates compared to straight-line depreciation.

Annual Depreciation Expense

The portion of the cost of a fixed asset that is charged as an expense in a particular fiscal year, as a result of wear, tear, and obsolescence.

Straight-Line Depreciation

A method of calculating the depreciation of an asset by evenly spreading its cost over the expected life of the asset.

Asset Impairment Loss

A sudden write-down or devaluation of an asset to its fair market value which is lower than its currently recorded cost, reflecting unexpected decreases in value.