Gina, a cash basis taxpayer, owns a six-unit apartment building for which she re

Question

Gina, a cash basis taxpayer, owns a six-unit apartment building for which she receives rent of $600 per month per unit. In 2006, five of the units were rented for the entire 12-month period. the sixth unit was rented from January 1st thru March 31st. Upon vacating the unit, the tenant was not refunded hsi security deposit of $400 due to damages to the unit. the unit was subsequently rented for one year beginning August 1, 2006. On August 1st, the new tenant paid the first and last month's rent and a refundable security deposit of $400. What is Gina's total rental income for 2006?
a. $40,800 b.$41,200 c. $41,800 d.$42,200

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Explanation / Answer

Cash basis accounting is when income is recorded as it is received. Therefore, all of the money taken in, except the for the security deposit of the new tenant, is considered taxable for 2006. That being said, you can figure that there was $36,000 in income from the 5 units that were rented for the full year ($600 per month x 12 months x 5 units). There was $1,800 in income for the unit that was rented through March ($600 per month x 3 months). There was the $400 nonrefunded security deposit from the 1st tenant. And there was the $3600 in rent paid from the second tenant ($600 per month x 5 months (+ last months rent)). Add those up and you get c. $41,800 ($36,000 + 1,800 + 400 + 3,600).

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