R1:M3 - Gross Income (P2)

Question 1

What schedule is Rental Activity Reported?

Answer 1

Schedule E

Question 2

What is the formula to compute Net Rental Income/Loss?

Answer 2

Gross Rental Income + 
Prepaid Rental Income + 
Rent cancelation payment + 
Improvement-in-lieu of Rent +
 =
NET RENTAL INCOME/LOSS

Question 3

If rental of RESIDENCE is fewer than 15 days per year what is it treated as?

Answer 3

Personal Residence

Question 4

How do you treat Rental Income from Personal Residence?

Answer 4

Rental Income is EXCLUDED from Income

Mortgage Interest (of 1st and 2nd home) - is allowed as Itemized Deduction

Real Estate Taxes - are allowed as Itemized Deduction

Depreciation, Utilities, and Repairs - NOT deductible

Question 5

What criteria needs to be met for residence to be treated as a PERSONAL/RENTAL RESIDENCE?

Answer 5

Residence must be rented for 15 or more days , and

Is used for personal purposes for the greater of:

1) More than 14 days, or
2) More than 10% of the rental days

Question 6

How do you treat a Personal/Rental Residence?

Answer 6

Expenses MUST be prorated b/w Personal and Rental use.

A different proration method is used for Mortgage Interest & Property Taxes (than other property-related expenses)

Rental use expenses are deductible ONLY to the extent of rental income

Question 7

How do you treat Nonresidence Rental Property?

Answer 7

Taxpayer includes income received from the property in GI and deduct all expenses allocated to the rental property on Schedule E of Form 1040

Question 8

What is the exception to Rental Activity>

Answer 8

Rental losses are considered passive and will be deductible ONLY to the extent of passive income

An exception to this rule allows an ACTIVE participant in rental activity (nonresidence) to deduct up to $25,000 of rental losses against nonpassive income

Question 9

Where does self-employment income get computed?

Answer 9

Schedule C

The NI from the Sole Proprietorship is then transferred to - Form 1040 (as 1 amount)

Question 10

What is the formula to compute Self-Employed Profit/Loss?

Where does this go?

Answer 10

Gross Business Income

PROFIT/LOSS

Gets computed on Sch C and goes onto line 12 of Form 1040

Question 11

How do you treat Interest for self-employed cash basis taxpayer?

Answer 11

Cash basis taxpayers deduct interest in the year paid or the year to which the interest relates - whichever is LATER

Interest must be both Paid & Incurred to be deducted

Question 12

Where is Itemized deduction reported?

Answer 12

Schedule A of Form 1040

Question 13

How do you deduct state and local business taxes?

Answer 13

State and local business taxes are fully deductible on
Sch C
State and local Income business taxes are deductible on Sch A (these are personal expenses only deductible on Sch A)