Claire and Harry Own a House on Hilton Head Island

question 157

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:

Critical Value Approach

A method in hypothesis testing that involves comparing the test statistic to pre-determined values to decide whether to reject the null hypothesis.

Model Significant

A measure of the likelihood that the relationships observed in the data occur due to something other than chance.

Correlation Coefficient

A metric that evaluates how closely related the movements of two variables are.

Linear Relationship

A relationship between two variables where a change in one variable is associated with a proportional change in the other variable, often represented by a straight line when graphed.