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?
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
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.
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