1. Individual Taxpayer T ("T") owns a rental home which T used for personal use for 20 days and rented for 220 days during the year. T's rental income, from the home, was $32,000 and total expenses were as follows: (i) Mortgage Interest $18,000, (ii) Real Estate Tax $6,000, (iii) Utilities $6,000, and (iv) Depreciation $12,000. A tax consequence to T is:
   2. T may recognize net losses of ($10,000) on T's individual income tax return
   4. T may recognize net losses of ($6,500) on T's individual income tax return
   6. T will recognize net income / loss of $0 and no carryovers
   8. T will recognize net income / loss of $0 and $10,000 of loss that will carry forward to the following tax year
   10. T will recognize net income / loss of $0 from the rental property, and will be able to deduct $1,500 of mortgage of interest on T's individual income tax return, assuming T uses the court test

Can you explain how the answer is 2? I can not understand it. Please do it step by step, with out skipping anything. I assume its about vacation rules.