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Karen and Andy own a beach house. They have an agreement with a rental agent to rent it up to 2 0 0 days per
Karen and Andy own a beach house. They have an agreement with a rental agent to rent it up to days per year. For the past three
years, the agent has been successful in renting it for days. Karen and Andy use the beach house for one week during the summer and
one week during Thanksgiving. Their daughter, Sarah, a college student, has asked if she and some friends can use the beach house for the
week of spring break. Advise Karen and Andy on how they should respond, and identify any relevant tax issues.
If the residence is rented for
days or more in a year and is not used for personal purposes for more than the
of
days or
of the total days rented, the residence is treated as rental property. The
expenses must be allocated between personal and rental days if there are any personal use days during the year.
In prior years, the beach house has been classified as
property, since the personal use did
not exceed
the limits
outlined above. Thus, if the total available deductions exceeded the rental income, the loss was deducted on Karen and Andy's tax
return.
If Sarah is permitted to use the beach house for one week, the total personal use of the beach house
the statutory limit In
this case, the deductions are
only permitted to the extent of rental income
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