CPA-Regulation Exam For Best Results in Actual Exam
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Choices "b" and "c" are <strong>in</strong>correct. Gifs and <strong>in</strong>heritances are both tax-free to the recipient. (Remember<br />
tax is ofen paid by the person giv<strong>in</strong>g the gif or the estate at death.)<br />
Question 7<br />
Adams owns a second residence that is used for both personal and rental purposes. Dur<strong>in</strong>g 2001, Adams<br />
used the second residence for 50 days and rented the residence for 200 days. Which of the follow<strong>in</strong>g<br />
statements is correct?<br />
A. Depreciaton may not be deducted on the property under any circumstances.<br />
B. A rental loss may be deducted if rental-related expenses exceed rental <strong>in</strong>come.<br />
C. Utlites and ma<strong>in</strong>tenance on the property must be divided between personal and rental use.<br />
D. All mortgage <strong>in</strong>terest and taxes on the property will be deducted to determ<strong>in</strong>e the property's net<br />
<strong>in</strong>come or loss.<br />
Aoswern C<br />
Explanaton<br />
Choice "c" is correct. Because the second property was personally used more than 14 days, any net loss<br />
from the rental of the property will be disallowed.<br />
All related expenses must be prorated between the personal use porton and the rental actvity porton.<br />
Prorated depreciaton is permited for the rental actvity.
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