EA Unit 9: Rental and Royalty Income

In 2018, Travis and Brittany moved to Florida. They decided to rent their old house in California instead of selling it. They had purchased the home five years ago for $500,000 and had paid $80,000 fro various improvements over the years. The purchase price of $500,000 was attributable to fair market values of $100,000 for the land and $400,000 for the house.

$12,500.

Matthew and Diane are legally separated and have lived in separate residences for three years. They file separate tax returns (MFS). They own a rental property jointly; actively participate in the rental activity, and share income and losses equally. The rental property had $30,000 of losses during the year. Matthew has wage income of $48,000 in 2018. He has no other items of income or loss. What is the maximum amount of rental losses that Matthew can claim on his separate return?

$12,500.

Reba converted her primary residence to rental use during the year. Her original cost was $189,000, of which $13,200 was allocated to the land and $175,800 was to the house. On the date of the conversion, the property had a fair market value of $158,000, of which $11,000 was allocable to the land and $147,000 to the house. What is Reba's basis for depreciation on Schedule E?

$147,000.

Ian signs a three-year lease from a tenant who wishes to rent a building he owns. In December 2018, Ian receives $12,000 for the first year's rent and $12,000 as rent for the last year of the lease. He also receives a $1,500 security deposit that is refundable at the end of the lease. How much rental income must Ian include in his 2018 tax return?

$24,000.

Based on the information in the previous question, What is the amount of basis on which depreciation should be calculated for the rental period?

$420,000.

Rosemary's home is used exclusively as her residence all year, except for 13 days. During this time, Rosemary rents her home to alumni while the local college has its homecoming celebration. She made $3,000 of rental income and had $500 of rental expenses during this 13-day period. Which of the following statements is correct?

All of the rental income may be excluded.

Which of the following describes depreciation?

An annual tax deduction that accounts for the reduction in the value of an asset as it ages.

Pamela ordered an HVAC unit for her rental property on November 15, 2018. It was delivered on December 28, 2018, and was installed and ready for use on January 2, 2019. She paid for the unit using a credit card and paid off the card on February 3, 2019. On which date would the HIVAC unit be considered "placed in service" for depreciation purposes?

January 2, 2019.

Which of the following costs related to rental property should be classified as a capital improvement and depreciated rather than being expensed currently?

Replacing an entire deck.

Asher decides to convert his primary residence into a rental property. He moves out of his home in May 2018 and starts renting it on June 1, 2018. He has $12,000 of mortgage interest for the year. How should Asher report his mortgage interest expense?

Report $7,000 on Schedule E as interest expense and $5,000 on schedule A as mortgage interest.

Tina owns a residential rental house. Last year, she paid $968 to repair a broken window. The cost of the labor was $468, and the cost of the replacement window. What is the correct treatment of this expense?

She can deduct the entire $968 as a rental expense on Schedule E.

In 2018, Jane is single and has $40,000 of wages, $2,000 of passive activity income form a limited partnership, and $3,500 of passive activity loss from a rental real estate activity in which she actively participated. Which of the following statements is correct?

The first $2,00 of Jane's $3,500 passive loss offsets her passive income. Jane can deduct the remaining $1,500 loss to reduce taxation of her wages.