Sol and Moira own a small mountain house in Colorado. They have always used it personally for their family, but are considering renting it out to increase their annual income. They will use the house for 10 days per year. Their adjusted gross income is $100,000 and they are in the 22% tax bracket. They have always been able to itemize their deductions vs. using the standard deduction due to their high charitable contributions. The mortgage payment on the house (interest and principal) totals $12,000/year. They will be actively involved in decision making in regards to the house. Do not use dollar signs in your answer, but do you use appropriate commas, ie. 2,000. If answer is a negative number, use a minus sign to indicate, ie. -200 Their estimated annual income and expenses for the house are as follows: Rental income $25,000 Commissions to rental company 5,000 Utilities, cable, maintenance 7,000 Interest on mortgage on house (included in payment above) 5,000 Real estate taxes on house 3,000 Depreciation calculated on house (assuming personal use of 10 days) 8,000 a. Calculate the annual net income/loss without regard to limitations. .5 point b. Will they be allowed to deduct any losses on their personal return? Explain why or why not. .5 point C. Calculate the tax effect of any losses in their current tax bracket. (Income or loss X their tax rate) .5 point d. What expenses are deductible even if they choose NOT to rent it out?.5 point e. Calculate their annual net CASH flow from the property...include the mortgage payment, but do not include any expenses that don't use cash. 1 point f. Discuss the tax effects of converting this property to rental use, ie will the rental of the property help to cover the mortgage? What advice would you give the client if asked about the conversion. 2 points Sol and Moira own a small mountain house in Colorado. They have always used it personally for their family, but are considering renting it out to increase their annual income. They will use the house for 10 days per year. Their adjusted gross income is $100,000 and they are in the 22% tax bracket. They have always been able to itemize their deductions vs. using the standard deduction due to their high charitable contributions. The mortgage payment on the house (interest and principal) totals $12,000/year. They will be actively involved in decision making in regards to the house. Do not use dollar signs in your answer, but do you use appropriate commas, ie. 2,000. If answer is a negative number, use a minus sign to indicate, ie. -200 Their estimated annual income and expenses for the house are as follows: Rental income $25,000 Commissions to rental company 5,000 Utilities, cable, maintenance 7,000 Interest on mortgage on house (included in payment above) 5,000 Real estate taxes on house 3,000 Depreciation calculated on house (assuming personal use of 10 days) 8,000 a. Calculate the annual net income/loss without regard to limitations. .5 point b. Will they be allowed to deduct any losses on their personal return? Explain why or why not. .5 point C. Calculate the tax effect of any losses in their current tax bracket. (Income or loss X their tax rate) .5 point d. What expenses are deductible even if they choose NOT to rent it out?.5 point e. Calculate their annual net CASH flow from the property...include the mortgage payment, but do not include any expenses that don't use cash. 1 point f. Discuss the tax effects of converting this property to rental use, ie will the rental of the property help to cover the mortgage? What advice would you give the client if asked about the conversion. 2 points
