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Exam 8: Rental Property, Royalties, and Income From Flow-Through Entities

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Question 21

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What is the proper tax treatment of capital improvements for a residential or commercial rental property?

A) IRC section 179 may be claimed.
B) Can be deducted as ordinary expenses.
C) Must be depreciated using the double-declining balance method.
D) Must be depreciated using straight-line over 27½ or 39 years.

E) B) and D)
F) None of the above

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Question 22

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What are the rules concerning the deductibility of travel as it relates to rental properties? How are travel expenses to and from rental properties calculated?

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Travel costs from the taxpayer's home to...

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Question 23

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Lori and Donald own a condominium in Colorado Springs,Colorado,that they rent out part of the time and use during the summer.The rental property is classified as personal/rental property and their personal use is determined to be 75% (based on the IRS method) .They had the following income and expenses for the year (before any allocation) : How much net loss should Lori and Donald report for their condominium on their tax return this year?

Which of the following statements is incorrect concerning rental properties?

Meredith has a vacation rental house in the Sierra Mountains.During the year,she and her immediate family used the house for 12 days for a personal vacation.Meredith spent two more weekends (4 days in total)repairing the deck.The house was rented for 120 days.How should the cabin be categorized this year for tax purposes? Explain your answer.

Rental income may be reported on a Schedule A or a Schedule C.

Royalties can be earned from allowing others the right to use:

Jacqueline owns a condominium on an island in Washington which was rented out all year for $30,000.She incurred the following expenses: What amount of net income or loss does Jacqueline report from this rental property?

Royalties can be earned from allowing others the right to use:

If a family member of a taxpayer uses the rental property and pays full rental value,then those days rented are considered rental days.

Jane and Don own a ski chalet in Lake Tahoe,NV and rented it for 12 days for $8,000.The rest of the year,the chalet was used by them and their friends and family.What is the proper tax treatment of the $8,000?

A property that has been rented for 180 days and used for personal use for 16 days should be categorized as:

Generally,a taxpayer uses Schedule C to report royalty income.

Which of the following statements is true with regard to the reporting of royalty income?

Flow-through entities supply each owner at the end of the year with a Schedule E,indicating his/her income and expenses to report.

A taxpayer may use a Schedule C or a Schedule E to report royalty income.

Jackson owns a condominium in Las Vegas,Nevada,and he rents it to Joanne for $1,500 per month,payable on the 1^st of each month.While he was out of town in August,the condominium's air conditioning broke and Joann had it replaced for $1,350.How much rental income does Jackson report for September if Joanne deducts the repair cost from her rent for September?

Entities such as partnerships,LLC's,and S Corporations are known as flow-through entities.

Royalties resulting from a non-trade or non-business activity should be reported on a Schedule E.

Jeremy and Gladys own a cabin in Sun Valley,Idaho,which they rented for 30 days.They also used the cabin with their family and friends for the ski season for 45 days.Their income and expenses were as follows: rental income $4,000,mortgage interest $3,000,property taxes $2,200,utilities $400,maintenance $400,and depreciation $4,800.How much depreciation expense can they deduct on Schedule E for the cabin? Use the IRS method for allocation of expenses.