Your clients, Bill and Betty Avila own two homes. Their first home in Grosse Pointe, Michigan is their primary residence. Their other home is in...

Your clients, Bill and Betty Avila own two homes. Their first home in Grosse Pointe, Michigan is their primary residence. Their other home is in Scottsdale, Arizona. They always treated their Scottsdale property as a second home for which they deduct the mortgage interest and real estate taxes on their Schedule A of their Form 1040 each year.Their son, Justin, has taken to ski racing, so the Avila’s have found that they have no time to spend at their Scottsdale property anymore. They spend the majority of the winter months traveling to his ski race locations. They have asked you what the tax implications are if they rent their Scottsdale property, as opposed to holding it as their second home. Please write a memo outlining the Federal income tax difference between holding the Scottsdale as a rental property vs. a second home. You must consider the following:1.Rules regarding the rental of a vacation home2.Effect of passive activity loss rulesa.The Avila’s have no other passive investments at this time.3.Impact on itemized deductions, including the new itemized deduction phase out applicable in 20134.You can ignore any investment income tax or AMT implicationsYou may include a spreadsheet with your memo to support your analysis. The following facts for 2013 may be applicable.$500,000Itemized deductions (excluding deductions related to the Scottsdale home) $30,000Scottsdale home detailsAdjusted basis$350,000Fair market value$500,000Assume date of conversion to rental is 1/1/2013Mortgage interest$17,500$5,000Association dues$2,400Expected rental income – renting from December through April $10,000Expected days of rental use: 120Expected days of personal use: 10Anticipated maintenance costs$1,000