Chapter 2 Rental income

Vote for Chapter 2 Rental income
0
323 Views
Elizabeth Marasco

Please ask your question here:

How do you count 11 months?

  1. Jan -Paid 2months
  2. feb
  3. Mar
  4. apr
  5. May
  6. June
  7. July'
  8. Aug
  9. Sept
  10. Oct
  11. Nov

Jan -Nov is 11 Months, then Jose received a one month prepayment, so he received 12 months of income

Original Fast Forward Academy test bank question:
Jose started renting a house to Bill for $600 per month beginning February 1, 2011. Bill paid $1200 on January 15, 2011, which included one 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 2011?

A. $6,000
B. $6,600
C. $6,900
D. $7,200

Explanation:
If 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, 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.

FFA EA Book Reference: CH 2 Gross Income
Subsection: Income
Subject: Rental income and expenses (e.g., vacation homes, NFP rentals, calculation of deprecation)
Correct Answer: B


Novice Level Question
Comments
Please login or register to comment on a question.

1 Answer(s)

Vote for this anser to Chapter 2 Rental income
0
Rain Hughes

The rental period does not begin until February, and payment is only received through November.  Feb-Nov = 10 months. The advance rent counts as income, for a total of 11 months.


Comments

Report the question for review or moderation

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Enrolled Agent Affliated Schools