Mike and Pam Own a Cabin near Teluride,Colorado How Should Mike and Pam Report the Rental Income and Year

question 58

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:
$\begin{array}{llcc} \text { Rental income } & \$ 700\\ \text { Froperty taxes } &(250) \\ \text { Mortgage interest } &(300) \\ \text {Repairs and maintenance } &(100) \\ \text { Utilities } &\underline{(150) }\\ \text {Rental loss } & \underline{\$(100) }\\\end{array}$

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:

After-Tax Discount Rate

The discount rate used in financial analysis that reflects the net cost or benefit of investment after accounting for taxes.

Incremental Sales

The additional revenue generated from a specific business action or decision, such as launching a new product.

Renovation Cost

Expenses associated with updating, refurbishing, or improving existing structures or spaces to increase their value or functionality.

Salvage Value

The anticipated salvage valuation of an asset upon the completion of its effective duration.