Mary and Charles have owned a beach cottage on the New Jersey shore for several years and have always used it as a family retreat. When they acquired the property, they had no intentions of renting it. Because family circumstances have changed, they are considering using the cottage for only one week a year and renting it for the remainder of the year. Their AGI approximates $100,000 per year, they are in the 30% tax bracket (combined Federal and state), and their total itemized deductions exceed the standard deduction amount. Interest and real estate taxes total $8,000 per year and are expected to continue at this level in the foreseeable future. If Mary and Charles rent the property, their incremental revenue and expenses are projected to be: Rent income $22,000 Rental commissions (4,000) Maintenance expenses (9,000) (10,000) Depreciation expense If the cottage is converted to rental property, they plan to be actively involved in key rental and maintenance decisions. Given the tax effects of converting the property to rental use, would the cash flow from renting the property be enough to meet the $12,000 annual mortgage payment? This would qualify for the real estate rental exception, which allows taxpayers to deduct up to $ income. Mary and Charles would have a $ against active and portfolio to renting the property and a tax benefit of $ X per year X incremental tax deduction related . Therefore, the net cash flow (before mortgage payments) of from renting the cottage would not be sufficient to cover the $12,000 mortgage payment.