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

What must the owner of rental property do with respect to the rental activity to have it be considered: 1) material participation? 2) a trade or business?

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?

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?

Define royalty income. What criteria determine which form is used and where the royalties are reported?

What is meant by ordinary rental expenses and what criteria must be met to be deductible? Provide some examples of deductible rental expenses. For this question, assume no personal use of the rental property.

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.

What are the criteria that determine an amount as capital improvement rather than repair and maintenance expense? What is the proper tax treatment of a capital improvement for rental properties?

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

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.

What are the different types of income that may be reported on Schedule E?

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?

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?

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.)

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

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

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

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.

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

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?

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.