Business, 21.05.2020 01:08 kitttimothy55

G 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 two weeks a year and renting it for the remainder of the year. Their AGI approximates $80,000 per year, and they are in the 32% tax bracket (combined Federal and state). 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) Depreciation expense (10,000) 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 qualify for the real estate rental exception, which allows taxpayers to deduct up to $ per year against income. Mary and Charles would have a $ incremental tax deduction related to renting the property and a tax benefit of $ . Therefore, the net cash flow (before mortgage payments) of $ from renting the cottage sufficient to cover the $12,000 mo

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G Mary and Charles have owned a beach cottage on the New Jersey shore for several years and have alw...

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