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

Question 1

Jennifer's beach house rented for 175 days and used by her and her family for 15 days,is considered personal/rental property.

Answer 1

False

Question 2

A property rented for less than 15 days and used for personal use the remainder of the year,should have the rental income reported on Schedule E.

Answer 2

False

Question 3

A royalty is a payment for the right to use intangible property.

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

Residential rental properties are depreciated using the straight-line method over 27½ years.

Question 9

Rental income is generally reported on Schedule C.

Question 10

Capital improvements on rental properties may be deducted in the current year.

Question 11

A personal/rental property (that is not a trade or business)may report its income and expenses on Schedule A.

Question 12

When royalties are paid,the amount paid is reported to the recipient by the payer at the end of the year on a Schedule K-1.

Question 13

Flow-through entities are named as such because they are taxed continuously.

Question 14

There are two methods available to taxpayers to allocate expenses between personal and rental use of properties.

Question 15

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

Question 16

In the case of personal/rental property,a taxpayer can deduct expenses only to the extent that there is rental income.

Question 17

Jonathan and Sandy rented their cabin for 123 days and used the cabin for personal use for 55 days.The cabin is considered personal/rental property.

Question 18

Rental properties that are also used as vacation homes fall under one of three categories:
(1)primarily rental,
(2)primarily personal,and
(3)personal/rental.

Question 19

A security deposit for a rental property is not reported as income.

Question 20

If a tenant pays an expense normally paid by the taxpayer (landlord)in lieu of rent (or the full rent),that expense is not considered part of rental income to the taxpayer.

Question 21

Alexis' cabin in the mountains that was rented for 125 days and used by her for 12 days is considered personal/rental property.

Question 22

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

Question 23

Flow-through entities include,but are not limited to,LLCs,S Corporations,trusts and estates.

Question 24

A primarily rental property may report its income and expenses on a Schedule E.

Question 25

Royalty income is income received from the use of books,stories,plays,copyrights,trademarks,etc.owned by the taxpayer.

Question 26

The income from a partnership to its partner is considered self-employment income.

Question 27

Joey and Susan rented their house for 2 weeks and used it for personal use for the remainder of the year.The house is considered personal/rental property.

Question 28

All rental properties are depreciated using the straight-line method over 39 years.

Question 29

All advance rental payments received,including security deposits for a rental property,must be reported as income when received.

Question 30

In the case of a primarily personal property,a taxpayer may report a net loss as long as the correct allocation method was used.

Question 31

Flow-through entities file "informational returns."

Question 32

A taxpayer with a rental activity may be allowed up to $25,000 of rental losses against other (active or portfolio)income.

Question 33

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

Question 34

If a taxpayer materially participates in his/her rental activity as a real estate professional,the activity is considered a trade or business and not a passive activity.

Question 35

When royalties are paid,the amount paid is reported to the recipient by the payer on a Form 1099-MISC.

Question 36

The two methods that may be used to allocate expenses between personal and rental use of properties are the IRS method and the Tax Court method.

Question 37

Rental activities by definition are passive activities.

Question 38

In general,losses from passive activities may be deducted only to the extent that there is passive income.

Question 39

Rental properties that are also used as vacation homes fall under one of two categories:
(1)primarily rental; or
(2)primarily personal.

Question 40

If a tenant provides service for the rental property in lieu of rental payment,the fair market value of the service is considered rental income and must be reported as income.

Question 41

Mario owns a home in Park City,Utah,that he rented for $1,600 for three weeks during the summer.He lived there for a total of 120 days and the rest of the year,the house was vacant.The expenses for the home included $6,000 in mortgage interest,$900 in property taxes,$1,300 in maintenance and utilities,and $3,500 in depreciation.How much net rental income or loss from the Park City home would Mario report for the current year? Use the IRS method for allocating expenses.

A) $0
B) $1,600 net income
C) $6,000 net loss
D) $9,100 net loss

Question 42

Charles and Sarah own a home in Palm Springs,CA.During the year,they rented the house for 40 days for $5,000 and used it for personal use for 18 days.The house remained vacant for the remainder of the year.The expenses for the house included $16,000 in mortgage interest,$4,500 in property taxes,$1,000 in utilities,$1,200 in maintenance,and $9,800 in depreciation.What is the deductible loss for the rental of their home (without considering the passive loss limitation)? Use the Tax Court method for allocation of expenses.

A) $0
B) $5,000 net income
C) $17,414 net loss
D) $27,500 net loss

Question 43

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.

Question 44

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?

A) $0
B) $9,700 net loss
C) $20,300 net income
D) $30,000 net income

Question 45

In the current year,Marnie rented her vacation home for 75 days,used it for personal reasons for 22 days,and left it vacant for the remainder of the year.Her income and expenses are as follows: What is Marnie's net income or loss from the activity? Use the Tax Court method. (Round your answer to the nearest whole dollar)

A) $0
B) $4,700 net income
C) $11,123 net income
D) $18,000 net income

Question 46

Hugh and Mary own a cabin in Big Bear that they rented for 45 days at $4,500.They used the cabin for personal use for 30 days during the year.The allocated expenses related to the cabin of $6,000,resulting in a net loss of $1,500 for this rental activity.What is the proper tax treatment of these amounts by Hugh and Mary?

A) Report net income of $4,500
B) Report rental net loss of $1,500
C) None of the amounts should be reported
D) Report income and expenses on Schedule E but expenses cannot exceed income

Question 47

Lupe rented her personal residence for 13 days to summer vacationers for $3,800.She lived in the home for the rest of the year.She has AGI of $95,000 excluding the rental income.Related expenses for Lupe's personal residence for the year include these: What is Lupe's AGI after taking into consideration the rental income and related expenses?

A) $95,000
B) $98,098
C) $98,800
D) $115,000

Question 48

If a taxpayer materially participates in a real estate activity as a real estate professional,the income and expenses of the activity should be reported on:

A) Schedule A
B) Schedule C
C) Schedule E
D) None of these

Question 49

Brad and Kate received $9,500 for rent from Mike and Janet,who are renting their home in Santa Ana,California.Brad and Kate did not use this property for personal use.The rent covers eight months from August 1 of the current year to March 31 of the following year.The amount also includes a security deposit of $1,500.How much should Brad and Kate report as rental income in the current tax year?

A) $1,500
B) $5,000
C) $8,000
D) $9,500

Question 50

Which of the following is not considered a capital improvement for a rental activity?

A) Addition of a bathroom
B) Replacement of the roof
C) Repair of a leaky water pipe
D) New landscaping

Question 51

May owns a four-plex in Garden Grove,CA.She rents out 3 units and lives in the fourth.Her income and expenses for the entire four-plex are as follows: mortgage interest $8,200,property taxes $9,000,insurance $3,000,utilities $2,000,repairs and maintenance $1,000,depreciation on the entire complex of $5,000,and rental income of $25,000.What amount of net rental income or loss should May report on her current tax return?

A) $3,200 net loss
B) $3,850 net income
C) $21,150 net loss
D) $25,000 net income

Question 52

Jamison owns a rental cabin in Mammoth,and travels there for maintenance three times a year,between January and June.The round trip to Mammoth from San Diego where Jamison lives,is approximately 405 miles.How much travel costs can Jamison deduct per year related to his rental cabin? (Round your answer to the nearest whole number)

A) $248
B) $680
C) $743
D) $1,352

Question 53

Georgia owns a home in Colorado that she rents for $1,200 per month (she does not use the home personally).While she was in Europe in November,the roof in her rental home leaked and her tenant repaired it for $900.For the following month's rent (December),her tenant paid her $300 for rent ($1,200 - $900).What amounts should Georgia include for rental income and repair expense,respectively,for December?

A) $300; $900
B) $900; $300
C) $1,200; $300
D) $1,200; $900

Question 54

Naomi and Matt received the following amounts from a tenant who is renting their condominium during the current year (rent is $1,500 per month): Rent for two months would normally have been $3,000,but the tenant paid $800 for a plumbing repair.The repair would normally have been paid by Naomi and Matt but the problem occurred while they were out of town.How much should Naomi and Matt report as rental income for the current tax year?

A) $2,200
B) $2,400
C) $3,000
D) $4,600

Question 55

On June 1 of the current year,Jack and Angie purchased a rental beach house for $900,000 and rented it right away.Of that amount,$600,000 was for the land value.How much depreciation deduction can Jack and Angie take in the current year? (You may need to refer to the depreciation tables.)

A) $5,910
B) $10,909
C) $11,820
D) $17,730

Question 56

Which of the following statements is not true about vacation home properties?

A) Property rented for 15 days or more and used for personal use for 14 days or less would be categorized as primarily rental
B) A property rented for 15 days or more and used for personal use for more than 14 days would be categorized as personal/rental
C) A property categorized as primarily personal is rented for 0 days
D) A primarily personal property does not need to report the income from the property

Question 57

A property that has been rented for 120 days and used for personal use for 13 days should be categorized as:

A) Primarily rental
B) Primarily personal
C) Personal/rental
D) None of these

Question 58

Which of the following expense items is(are)deductible as rental expense for a rental property?

A) Travel related to the property
B) Management fees
C) Repairs and maintenance
D) All are deductible expenses

Question 59

Which of the following is not considered an ordinary expense for a rental activity?

A) Advertising
B) Insurance
C) Property taxes
D) All of these are deductible as ordinary expense

Question 60

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) Should be reported on Schedule E
B) None of the rental income is included in gross income
C) The amount should be reported on Schedule C
D) The amount should be reported as other income on Form 1040

Question 61

Nathan owns a tri-plex in Santa Maria,California.He lives in one and rents the other two remaining units.All three units are identical.He incurred the following expenses for the entire building: How much in rental expenses can Nathan deduct against the rental income on a Schedule E in the current year (without considering any passive loss limitations)? (Round your answers to the nearest whole dollar)

A) $14,733
B) $20,000
C) $29,467
D) $44,200

Question 62

Which of the following statements is incorrect concerning rental properties?

A) Generally,rental activities are reported on Schedule
B) All ordinary expenses related to the rental activity are deductible.
C) Capital improvements may be deducted as expense in the year the improvements are made.
D) Travel expenses related to the rental activity are calculated using the standard mileage rate.

Question 63

Ariel,Bob,Candice and Dmitri are equal partners in a local ski resort.The resort reports the following items for the current year: Each partner receives a Schedule K-1 with one-fourth of the preceding items reported to him/her.How must each individual report these results on his/her Form 1040?

A) $100,000 income on Schedule E; $1,000 short-term capital gain on Schedule D
B) $112,500 income on Schedule E; $1,000 short-term capital gain on Schedule D
C) $300,000 income on Schedule E; $26,750 short-term capital gain on Schedule D
D) $1,200,000 income on Schedule E; $107,000 short-term capital gain on Schedule D

Question 64

From which of the following flow-through entities is the ordinary income (K-1)considered self-employment income?

A) S corporations
B) Estates
C) Trusts
D) Partnerships

Question 65

Eddie and Camilla received $11,600 for the rental of their rental house in Irvine,California.Eddie and Camilla do not use this property for personal use.The rent covers six months from October 1 of the current year to March 31 of next year.The amount also includes a security deposit of $2,000.How much should Eddie and Camilla report as rental income in the current tax year?

A) $2,000.
B) $9,600.
C) $11,600.
D) $13,600.

Question 66

Darius and Chantal own a cabin in Lake Arrowhead,California.During the year,they rented it for 45 days for $10,000 and used it for 12 days for personal use.The house remained vacant for the remainder of the year.The expenses for the house included $9,000 in mortgage interest,$2,000 in property taxes,$1,000 in utilities,$600 in maintenance,and $3,000 in depreciation.What is their net income or loss from their cabin (without considering the passive loss limitation)? Use the IRS method for allocation of expenses.(Round your answer to the nearest whole dollar)

A) $0
B) $2,316 net loss
C) $5,600 net loss
D) $10,000 net income

Question 67

On June 1^st of the current year,Nancy and Dean purchased a rental beach house for $1,200,000.Of that amount,$800,000 was for the land value.How much depreciation deduction can Nancy and Dean take in the current year? (You may need to refer to the depreciation tables.)

A) $7,880.
B) $14,545.
C) $15,760.
D) $23,640.

Question 68

Samantha is a full-time author and recently published her 8^th romance novel.She should report the royalty income she receives from the publisher this year on what Schedule/Form?

A) Schedule C
B) Schedule K-1
C) 1099-MISC
D) 1099-INT

Question 69

Reggie and Bebe own an apartment building in Portland,Oregon,with 8 identical units.They live in one and rent the remaining units.Their rental income for the year was $45,000.They incurred the following expenses for the entire building: What amount of net income should Reggie and Bebe report for the current year for this rental? (Round your answer to the nearest whole dollar)

A) $7,650
B) $12,213
C) $38,350
D) $45,000

Question 70

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.

A) $0
B) $1,600
C) $2,400
D) $4,800

Question 71

Alex,Ellen and Nicolas are equal partners in a local restaurant.The restaurant reports the following items for the current year: Each partner receives a Schedule K-1 with one-third of the preceding items reported to him/her.How must each individual report these results on his/her Form 1040?

A) $100,000 income on Schedule E; $50,000 investment expense on Schedule A
B) $257,667 income on Schedule E; $50,000 investment expense on Schedule A
C) $300,000 income on Schedule E; $50,000 investment expense on Schedule A
D) $300,000 income on Schedule E; $150,000 investment expense on Schedule A

Question 72

When royalties are paid,at the end of the year the payer sends the recipient a Form _____?

A) Schedule C
B) Schedule K-1
C) 1099-MISC
D) 1099-INT

Question 73

On June 1^st of the current year,Kayla and Ralph purchased a rental beach house for $700,000.Of that amount,$400,000 was for the land value.How much depreciation deduction can they take in the current year? (You may need to refer to the depreciation tables.)

A) $0.
B) $5,910.
C) $7,880.
D) $13,790.

Question 74

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

A) It must be reported on Schedule C only
B) It must be reported on Schedule E only
C) It can be reported on Schedule C but generally on Schedule E
D) Royalty income reported on Schedule E is subject to self-employment tax

Question 75

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

A) Books
B) Plays
C) Trademarks
D) All of these

Question 76

Owen and Jessica own and operate an S corporation.Each is a 50% owner.The business reports the following results: How do Owen and Jessica report these items for tax purposes?

A) $68,500 income on Schedule E; $16,000 investment expense on Schedule D
B) $68,500 income on Schedule E; $8,000 investment expense on Schedule A
C) $137,000 income on Schedule E; $88,000 investment expense on Schedule A
D) $225,000 income on Schedule E; $16,000 investment expense on Schedule A

Question 77

Which of the following entity(ies)is(are)considered flow-through?

A) C corporation
B) Sole proprietorship
C) Publicly traded corporation
D) S corporation

Question 78

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

A) Copyrights
B) Formulas
C) Coal mines
D) All of these

Question 79

Stephen and Joy own a duplex in Newport Beach,CA.They live in one unit and rent the other to another couple.Their rental income for the year was $24,000.They incurred the following expenses for the entire duplex: What amount of net income from the duplex should Stephen and Joy report for the current year?

A) $7,300
B) $9,400
C) $16,700
D) $24,000

Question 80

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?

A) $0.
B) $150.
C) $1,350.
D) $1,500.