[5] Mr. Lee rents his vacation home. Given the following information, determine the correct treatment of the rental income and expenses on his current-year return.

Days rented in the current year to

unrelated

parties at a fair rental price 56 Days used for personal purposes in the

current year 18

Total income and (expenses) during the current year:

Gross rental income Allocated interest and taxes Other allocated expenses

Net rental loss

$5,000 (4,000) (1,500)

$ (500)

A. A $500 loss should be shown on Schedule E, Form 1040.

B. The interest and taxes should be deducted on Schedule A, Form 1040, as itemized deductions.

C. Mr. Lee should include none of the income or expenses from the beach house on his current- year income tax return.

D. Rental expenses (other than interest and taxes) are limited to the gross rental income in excess of deductions for interest and taxes allocated to rental use.

[6] Mrs. R owns a beach cottage that she rented out for 3 months, lived in for 1 month, and tried unsuccessfully to rent for the rest of the year. Mrs. R received rental income of $5,600. Her total expenses for the cottage were as follows:

Interest Taxes Utilities Maintenance Depreciation

$3,000 1,800 1,500

900 2,400

What is Mrs. R's net rental income or loss to be reported on her income tax return?

A. $4,000 loss.

B. $800 income.

C. $0

D. $0 or $800 income.