Question Palooza (February 2020): Tax Planning - Taxation of Rental Property Income

Posted by Mike Long, CFP®, ChFC®, CLU®

Feb 15, 2020

This question is discussed in the Practice Question Palooza question episode of the BIF Bites podcast.

Rudy rents his beachfront home out to his frat brothers every spring for 14 days. He charges them $4,000 to cover damages. What is Rudy’s tax consequences?

  1. Rudy can write off the repairs against his income
  2. Rudy does not have to report income
  3. The repairs are deductible but Rudy cannot show a loss
  4. In addition to deducting repairs Rudy can deduct an allocated portion of real estate taxes, depreciation and other expenses.

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Correct answer: B. Rudy does not have to report income.

Instructor insight:

Vacation rentals homes are classified into one of three categories for tax purposes: 1. primarily personal use, 2. primarily rental use, and 3. mixed use.

If a rental property is rented less than 15 days per year, the property is classified as primarily personal use and the owner does not need to declare the rental income. Expenses associated with the rental activity are not deductible, except for mortgage interest, property taxes, and casualty losses.

 

Topics: Practice Questions

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Last updated: December 28, 2023

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