Jesse’s former residence was rented almost immediately with occupancy commencing April 1, 2018, under the following...

Jesse’s former residence was rented almost immediately with occupancy commencing April 1, 2018, under the following terms: one-year lease, $2,400 per month due the first day of the month, first and last months’ rent in advance, $2,000 damage deposit, lawn care included but not utilities. The tenant complied with all terms except that the December rent payment was not made until January 1, 2019, because the tenant took an extended holiday trip that started on Thanksgiving Day (November 22) through Christmas Day (December 25). Expenses in connection with the property were as follows: property taxes, $2,600; repairs, $320; lawn maintenance, $540; insurance, $1,800; and street paving assessment, $2,100. The property is located at 12120 Lake Road, Harvey, MI 49855.

How would this be presented on a tax return? What expenses would be included/excluded and what income would be recognized? United States Tax Laws

Expert Solution

Answer:

The rental income along with deductions will be reported on Form 1040, Schedule E, Part I.

Rental income

Rent paid(2400*8)= 19200(included)
Advance rent(2400*2)= 4800(taxed in the year in which it is received)(included)
Security deposit= 2000(not included in income as it would be returned if no damages are incurred)

Total rental income = $24000

Less deductions

Property taxes= 2600
Repairs= 320
Lawn maintenance= 540
Insurance= 1800
Street paving assessment= 2100(not included)

Total deductions= $5260

Net rental income= 24000- 5260

= $18740

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