Rental Flashcards
- You purchased a heating, ventilating and air conditioning (HVAC) unit for your rental property on December 15th. It was delivered on December 28th and was installed and ready for use on January 2nd. When should the HVAC unit be considered placed in service?
- December 15th.
- December 28th.
- December 31st.
- January 2nd
January 2nd Xxxxx
Kathy is single and owns an apartment building with 12 units that she manages personally. She collects the rents and arranges for ordinary repairs. In 2017, Kathy had a loss of $30,000 on this rental activity and had no reportable passive income. Her adjusted gross income before considering the rental loss is $50,000. How much of the rental loss does Kathy deduct on her 2017 return? • $20,000 • $25,000 • $30,000 • $ 0
$25,0000
Ralph rents a house to Fred and Wilma. During a cold winter week in December, a pipe burst at the house. Ralph was on a ski vacation in Aspen and asked Fred and Wilma to get a plumber to repair the damage. They paid the plumber $575 in December, which Ralph asked them to deduct from their next monthly rental payment of $5,000 in January. How much rental income does Ralph have for January? • $5,000 • $5,575 • $4,425 • $5,745
4425
Any expenses paid by a tenant on behalf of the owner are considered income to the owner. A cash basis taxpayer must report income in the year of constructive receipt (when he actually receives it) regardless of when it is earned. Fred and Wilma are considered to pay $575 in rent to Ralph in December. The payment of $4,425 is income in January, upon constructive receipt.
This is an interesting question. The landlord agrees to allow the rental deduction which brings the income into that year, and he could not claim the expenses until reimbursement occurs, which is arguably the following year.
Jose started renting a house to Bill for $600 per month beginning February 1, 2017. Bill paid $1,200 on January 15, 2017, which included the first month's rent and one month's security deposit. The rent is due by the 5th of the month. The lease specifies that the security deposit would also be used as the final month's rent. Bill pays the rent on the 2nd of each month. In July, Bill also paid $150 for repairs to the air conditioning system and in September he paid $80 for a roof repair. He deducted the amounts from the rent paid to Jose for those months. Bill was unable to pay December's rent until January of the next year. How much should Jose report as rental income for 2017? • $6,000 • $6,600 • $6,900 • $7,200
6600
tenant will use their security deposit as a final payment of rent, it is advance rent. The property owner should include it as income when received. Rental income includes expenses of the property owner paid by the tenant. Jose received 2 months worth of rent on Jan 15 (first and last month), and 9 more months through Nov 2, for a total of 11 payments. (11 x $600 = $6,600). The money is income in the year received.
Ms. Cross owns a house that she rents to non-related parties. She incurred the following costs during 2017:
• $400 to resurface a tub in the master bathroom.
• $500 to paint the kitchen after installing new cabinets.
• $2,000 to replace cabinets in the kitchen.
• $600 to replace the built-in dishwasher.
S he doe s not ma k e t he e l e c t i on t o us e t he s a f e ha r bor f or a ny of t he s e c os t s . How s houl d t he s e c os t s be c ha r a c t e r i z e d a nd
i n wha t a mount s ?
3 , 1 0 0 a s i mpr ov e me nt s t o be c a pi t a l i z e d a nd $ 4 0 0 a s r e pa i r s
$ 4 0 0 a s i mpr ov e me nt s t o be c a pi t a l i z e d a nd $ 3 , 1 0 0 a s r e pa i r s
$ 3 , 5 0 0 a s i mpr ov e me nt s t o be c a pi t a l i z e d
$ 2 , 0 0 0 a s i mpr ov e me nt s t o be c a pi t a l i z e d a nd $ 1 , 5 0 0 a s r e pa i r s
31, 1 0 0 a s i mpr ov e me nt s t o be c a pi t a l i z e d a nd $ 4 0 0 a s r e pa i r s
Improvements add to the value of the property, increase its useful life, or adapt it to a new use. Replacing cabinets, a stove, or a dishwasher increase the value of the property, and therefore must be capitalized. Painting is typically a repair, but if the taxpayer makes repairs as part of an extensive remodeling or restoration of the property, the whole job is considered an improvement. Resurfacing the tub is a repair and is taken as an expense in the year incurred.
Greg owns a four-unit apartment building in San Jose. He advertises for tenants, negotiates leases with tenants, collects rents, and makes repairs. His cousin, Rafael, owns similar apartment buildings in the same neighborhood as Greg's building. Rafael spends more than half his time developing, constructing, renting, managing, and operating his apartment buildings as well as providing regular cleaning, linen service and maid service for the convenience of the tenants. Does either Greg or Rafael have self-employment income from these activities? • Yes, Greg does. • Yes, Rafael does. • Yes, they are both self-employed. • Neither is self-employed.
Yes, Rafael does.
• Rafael has self-employment income because he provides substantial services that are primarily for the convenience of his tenants such as cleaning, maid service, and linen service. Rafael reports his income and expenses on Schedule
Kathy rented out her summer home for 80 days plus used it personally for 20 days. She paid $1,000 for repairs and $2,000 for utilities. Rental income was $8,000. What was Kathy's net rental income? • $0 • $5,000 • $5,600 • $8,000
5600
Because Kathy uses the property more than 10% of the time, she must allocate expenses between rental and personal use. If 80% of the use is rented out at fair market rental rates, she can deduct 80% of the expenses from her rental income. Total expense of $3,000 x 80% = $2,400. Gross rental income of $8,000 - $2,400 of allowable expenses = $5,600 net rental income.
Paul owns a second home at the lake. During the year, he spent three weeks (21 days) at the lake home, rented it to his daughter for three three-day weekends for a total of $220, and rented it to friends for ten weeks (70 days) at fair rental value of $300 per week. His expenses for the year include: • Depreciation $2,000 • Insurance $100 • Mortgage interest $1,000 • Real estate taxes $2,000 • Utilities $1,000 What amount may he deduct for expenses on his Schedule E, Rental Income? • $2,100. • $3,000. • $3,220. • $4,620
3220
Personal use time is a total of 30 days (21 by Paul and 9 by his daughter at less than fair market rates). The total time rented at fair rental rates is 70 days. The total days used is 100; so the allowable portion of these expenses as rental expenses is 70%. Because of the dual use of the property, Paul is unable to deduct any expenses incurred that exceed the income earned from the rental of the property ($3,220). Carry forward any amounts that are not currently deductible.
Personal use time is a total of 30 days (21 by Paul and 9 by his daughter at less than fair market rates). The total time rented at fair rental rates is 70 days. The total days used is 100; so the allowable portion of these expenses as rental expenses is 70%. Because of the dual use of the property, Paul is unable to deduct any expenses incurred that exceed the income earned from the rental of the property ($3,220). Carry forward any amounts that are not currently deductible.
deduct as rental expenses. • 25% • 83% • 85% • 100%
83%
- The cottage was used for rental a total of 85 days (92 - 7). The days it was available for rent but not rented (7 days) are not days of rental use. The July weekend (2 days) is rental use because John received a fair rental price for the weekend.
- John used the cottage for personal purposes for 15 days (the last 2 weeks in May).
- The total use of the cottage was 100 days (15 days personal use + 85 days rental use).
- The rental expenses are 85/100 (85%) of the cottage expenses.
An individual taxpayer has only one passive activity, rental real estate. The taxpayer has a loss from this activity in the current year, but cannot deduct it on the tax return. What handling is appropriate for nondeductible losses of this type?
• Carried back 3 years and forward 15
• Carried back 2 years and carried forward indefinitely.
• Carried forward indefinitely, but not carried back.
• Carried forward 15 years.
Carried forward indefinitely, but not carried back.
Sam receives money from a variety of sources in 2017. Which of the following amounts does he report as income on his 2017 tax return?
• $1,000 per month that Sam directs the tenant of his rental house to pay his ex-wife.
• $2,000 for construction by the tenant of the rental house, without Sam’s knowledge, of a deck and patio as additions that add $2,000 of value to the property.
• $10,000 for the value of Sam’s coin collection that he sent to a dealer on consignment to sell for $10,000.
• $7,000 that the consignment vendor receives after commission for selling Sam’s coins and places in an escrow account controlled by the vendor.
1,000 per month that Sam directs the tenant of his rental house to pay his ex-wife.
