Question

1.John invests in shares of Dell Computers. He intends to hold these shares for an extended period of time and they are the only shares that he owns. He earns $6,000 in dividends from the shares in 2012.What kind of income are the dividends?

a. business income b. property income

2.Patrick is a serial investor and owns 4 different apartment complexes each with 20 units each. Each complex has its own building manager and repairman. He has a bookkeeper who does work for all the four buildings.What kind of income are the rents that Patrick will receive?

a.business income b.property income

Answer 1

1. Property income

This is the profit or profits earned by owning a capital equipment like receiving a rent or interest/dividend received on financial assets. He earned this income just by possessing the shares so it is a propert income.

2. Business income

Patric, as we can see from the statement, is in the business of renting out the apartments, he has a manager to manage this business as well so our is a business income. Yes, you may thing this income is being earned by owning a property but he is an active owner of the property and actually have employees ( manager and repairmen) to run his business.