Topic 21 - Residential Rental Income and Expenses

1. Look at the Form 1040 you prepared for Teresa Ownesal. What is the amount on Form 1040, Line 17?

A. $ 7,111.
B. $ 8,424.
C. $ (4,201). 
D. $ 5,450.

2. Look at the Form 1040 you prepared for Teresa Ownesal. What is the amount on Form 1040, Line 73a?

A. $ -0-.
B. $ 690.
C. $ 820. 
D. $ -0- owes $ 380.

3. Include this in your rental income in the year you receive it regardless of the period covered or the method of accounting you use.

A. Advanced rent
B. Security deposit
C. Rental contracts
D. All of the above

4. If you rent property that you also use as your home and you rent it fewer than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. 

True False

5. You can deduct your ordinary and necessary expenses for ______rental property from the time you make it available for rent.

A. Managing
B. Conserving
C. Maintaining
D. Any of the above.

6. You can begin to depreciate rental property when it is

A. First rented.
B. First advertised for rent.
C. Ready and available for rent.
D. A brand new property only.

7. Expenses you can deduct from your rental income does not include

A. Advertising.
B. Insurance.
C. Taxes and interest.
D. Expenses that increase value of your property.

8. You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip was to

A. Collect rental income.
B. Manage your rental property.
C. To conserve or maintain your rental property.
D.  Any of the above.

9. If you do not rent your property to make a profit, you can deduct your rental expenses

A. In excess of rental income.
B. Only up to the amount of your rental income.
C. Only on Schedule A (Form 1040) if you itemize your deductions.
D. Only if used for personal use for less that 14 days.

10. If you changed your home or other property (or part of it) to rental use at any time other than the beginning of your tax year, you must

A. Divide yearly expenses, such as taxes and insurance, between rental use and personal use.
B. Forego any depreciation that you could have claimed in that year.
C. Consider all your expenses as personal and deduct them on Schedule A.
D. Forget about reporting any rental income as you should have decided the manner of your property use from the start.

11. Although you can not deduct depreciation or insurance for the part of the year that the property was held for personal use, you can still

A. Deduct these expenses on Schedule A.
B. Deduct these expenses on Schedule C.
C. Deduct the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use on Schedule A (Form 1040).
D. Carry these expenses over to the following year and deduct them on Schedule E.

12. You can use a dwelling unit as a home during the tax year if you use it for personal purposes more than

A. 14 days
B. 10% of the total days it is rented to others at a fair rental price.
C. The greater of A or B above.
D. 30 days.

13. Repainting your property inside and out and fixing leaks in rental property are not currently deductible as repairs if they are part of an extensive remodeling of the property.

True False

14. Income received by an individual from the rental (not including self rentals) of an office building, where no significant services are provided to the tenant, should be reported on Schedule C, Profit or Loss From Business.

True False

15. Mike owns a four-family apartment building and actively participates in the rental activity. Mike advertised, rented the apartments to the tenants, collected the rents and made bank deposits. His brother, Bryan, also owns an apartment building. Bryan spends more than half his time developing, constructing, renting, managing, and operating his apartment building as well as providing regular cleaning, linen service and maid service for the convenience of the tenants. Which brother has self-employment income from his apartment building?

A. Mike
B. Bryan
C. Both brothers
D. Neither

16. Which of the following is not rental income in the year received?

A Security deposit, equal to one month's rent, to be refunded at the end of the lease if the building passes inspection.
B. Payment to cancel remaining lease.
C. Repairs paid by the tenant in lieu of rent.
D. Rent received in January 2009 for December 2008.

17. Peter owned a cottage on the lake that he bought in 2007. In 2008, he rented the cottage for 10 days to a stranger and used the cottage for 20 days for his own personal use. The cottage was not used the rest of the year. Peter had rental income of $1,000 and paid $600 for repairs. How should he report these activities on his 2008 tax return?

A. $ 1,000 income, $600 expenses.
B. $ 333 income, $200 expenses.
C. $ 0 income, $ 0 expenses.
D. $ 667 income, $ 400 expenses.

18. Beth and Donnie purchased a house to use as rental property. They paid the following amounts: $100,000 cash, assumption of an existing $25,000 mortgage, title search $ 500, recording fees of $ 100, points for their new loan of $1,000, and the sellers part of the property taxes of $1,500.  The seller did not reimburse them for the property taxes. What is their cost basis in the house?

A. $127,100.
B. $125,600.
C. $128,000.
D. $128,100.

19. You must decrease the basis of your property by any items that represent a return of your cost. This includes

A. Any deductible casualty loss not covered by insurance for which you took a deduction.
B. Any amount you receive for granting an easement.
C. Amount of any insurance or other payment you receive as the result of a casualty or theft loss.
D. Any of the above.

20. There are many times when you cannot use cost as a basis. You cannot use cost as a basis for property that you received

A. In return for services you performed.
B. In exchange for other property.
C. As a gift or inheritance.
D. Any of the above.

21. When you change property you hold for personal use to rental use (for example, you rent your former home), you figure the basis for depreciation using

A. The method and convention that apply over the recovery period.
B. The greater of fair market value or adjusted basis.
C. The lesser of fair market value or adjusted basis on the date of conversion.
D. The percentage from the optional tables.

22. Jose is a cash basis taxpayer whom started renting a house to Juan for $600 per month beginning February 1, 2008. Juan paid $1,200 on January 15, 2008, which included the rent for the last month of his rental period and the rest was for security deposit. The rent is due by the 5th of the month. The lease specifies that the security deposit would be returned 15 days after he moves out and upon performing an inspection of the property. Juan was unable to pay December's rent until January of 2009. How much should Jose report as rental income for 2008?

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

23. If you use your personal car, pickup truck or light van for rental activities, you can deduct your ordinary and necessary local transportation expenses you incur or 

A. The standard mileage rate of 50 1/2 cents per mile for all business miles driven for period January 1 through June 30, 2008.
B. The standard mileage rate of 58 1/2 cents per mile for all business miles driven for period July 1 through December 31, 2008.
C. The standard mileage rate of 48 1/2 cents per mile for all business miles driven in the year.
D. Both A and B above.

24. William owns a 4-unit apartment building for which he receives usually $500 per month per unit. Three of the units were rented for the entire twelve months. The fourth unit was occupied from January 1 to April 30, 2008. Upon vacating the unit the tenant was not refunded his security deposit of $500 due to damage to the unit. The unit was subsequently rented for one year beginning August 1, 2008. On August 1, 2008 the new tenant paid the first and last month's rent and a refundable security of $500. What is William's rental income for 2008? 

A. $22,500.
B. $23,000.
C. $23,500.
D. $24,000.

25. You rent a room in your home that is always available for short-term occupancy by paying customers. You do not use the room yourself and you allow only paying customers to use the room. The room in this case is used solely as a

A. Dwelling unit.
B. Hotel or motel, inn, or similar establishment.
C. A home.
D. All of the above.

26. You incurred the following expenditures in connection with your rental property. Which of them should be capitalized?

A. New roof
B. Install new cabinets
C. Pave driveway
D. Any of the above

27. 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?

A. December 15th
B. December 28th
C. December 31st
D. January 2nd

28. John and Mary moved into your rental property on January 1, 2008 and paid a $2,000(which included $1,000 security deposit). The monthly rent of $1,000 per month is due no later than the 5th of each month. While you were out of town, the furnace in the rental property stopped working and John and Mary paid $ 750 for the necessary repairs, and which was discounted from the rent for that month. All rents were paid on time for all of 2008. What is the total of these payments that should be reported as rental income for 2008?

A. $12,000.
B. $1,750.
C. $1,000.
D. $12,750.

29. Paul and Patricia had a pipe burst in the basement of the rental home. They were unable to reach you on your vacation. They had a plumber come out and repair the damaged pipe. They paid the plumber $575. They deducted $575 from their rent of $1,200. How much rent should be considered income that month?

A. $575.
B. $1,200.
C. $1,775.
D. $725.

30. You own a vacation home on Amelia Island, Florida, which you rented for 10 days in 2008. For 2008, rental expenses were $2,000 and rental income was $5,000. How much of the rental income should be reported on the 2008 tax return?

A. $5,000.
B. $3,000.
C. $ -0-.
D. $7,000.