Sarah owns a vacation cabin in the Tennessee mountains. Without considering the cabin, she has gross income of $65,000. During the year, she rents the cabin for two weeks for $2,500 and uses it herself for four weeks. The total expenses for the year are $10,000 mortgage interest; $1,500 property tax; $2,000 utilities, insurance, and maintenance; and $3,200 depreciation.

If an amount is zero, enter "0".

a. What effect does the rental of the vacation cabin have on Sarah's AGI?
Sarah reports rental income of ? and rental expenses of ? for AGI.
b. What expenses can Sarah deduct, and how are they classified (i.e., for or from AGI)?
Note: Assume that she itemizes her deductions.

a. Utilities $
b. Insurance $
c. Property Taxes $
d. Mortgage interest $
e. Maintenance expenses $

The vacation home is classified as primarily personal because it was rented for fewer than 15 days during the year. As Sarah can exclude the $2,500 of rent income, the vacation home

transactions have no effect on her AGI.

b. The only expenses that Sarah can deduct are those she normally would deduct as itemized

deductions. This includes the following:

Mortgage interest $10,000 Property tax

1,500

Total

$11,500

Sarah cannot deduct any of the utilities, insurance, and maintenance expenses or the depreciation. None of the expenses are deductible for AGI.