1. Rental Income. (Obj. 1) State the amount of rental income that must be report
ID: 2556394 • Letter: 1
Question
1. Rental Income. (Obj. 1) State the amount of rental income that must be reported on Schedule E for 2016 by cach of the following taxpayers Taxpayer Description Amount On November 30, 2016, the taxpayer receives $1,500 a security deposit, $1,000 for the December rent, and an advance payment of $5,000 for an additional five months' rent The taxpayer normally receives rent of $300 per month on the first of each month. In 2016, the tenant made $600 of improvements in lieu of two months' rent Rent of $1,200 is received when the taxpayer rents a personal residence to friends for 12 days during the Mardi Gras festivities.Explanation / Answer
A. Advance rent is taxable in the year in whichh it is received. However, security deposit is not taxable as it is refundable. Hence total rental income to be reported will be $6,000 ($1,000 + $5,000)
B. If the improvements are made by tenant in lieu of rent, then the same will be considered as rental income for the landlord. Hence the amount to be reported will be $3,600 ($300*10 months + $600)
C. If the personal residence is rented for less than 15 days, then the rental income is tax free. Here the residence is rented for only 12 days, so the entire rent is tax free and amount to be reported will be zero.
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