In 2019, Leah and her brother Greg, owners of a rental house, were very confused regarding...
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In 2019, Leah and her brother Greg, owners of a rental house, were very confused regarding the net rental income figure they were provided from their accountant after he filed their tax return. They said it wasn't the same as the income statement they had provided to him. They know you are currently taking tax, so they have provided you the following calculation of net rental income for the year ended December 31, 2020. Revenue (note 1) $25,000 Expenses Mortgage payments (note 2) 20,160 Utilities 4,600 Property tax 3,000 Advertising 400 Total expenses 28,160 Net rental loss (3,160) Note 1: Leah tells you that they rent the house for $2,500/month, and that their current tenant did not pay November and December rent until January 2021. Note 2: She also tells you that their mortgage is $1,680/month of which half goes to mortgage principal. The biggest confusion Greg and Leah had in 2019 was over this line item, Leah says was called "CCA", She says her accountant told her it was based on "UCC. The January 1, 2020 beginning UCC is $238,000. Required: 1. Explain to Leah, the adjustments that will be made to the income statement above for tax purposes based on the information you have been provided. You should be clear as to WHYthese adjustments are being made (i.e. what are the tax rules for rental income that have not been applied above) You may provide numbers for the adjustments, but you should not redo an income statement. Your response must be in a memo format written directly to Leah. Permalink Reply In 2019, Leah and her brother Greg, owners of a rental house, were very confused regarding the net rental income figure they were provided from their accountant after he filed their tax return. They said it wasn't the same as the income statement they had provided to him. They know you are currently taking tax, so they have provided you the following calculation of net rental income for the year ended December 31, 2020. Revenue (note 1) $25,000 Expenses Mortgage payments (note 2) 20,160 Utilities 4,600 Property tax 3,000 Advertising 400 Total expenses 28,160 Net rental loss (3,160) Note 1: Leah tells you that they rent the house for $2,500/month, and that their current tenant did not pay November and December rent until January 2021. Note 2: She also tells you that their mortgage is $1,680/month of which half goes to mortgage principal. The biggest confusion Greg and Leah had in 2019 was over this line item, Leah says was called "CCA", She says her accountant told her it was based on "UCC. The January 1, 2020 beginning UCC is $238,000. Required: 1. Explain to Leah, the adjustments that will be made to the income statement above for tax purposes based on the information you have been provided. You should be clear as to WHYthese adjustments are being made (i.e. what are the tax rules for rental income that have not been applied above) You may provide numbers for the adjustments, but you should not redo an income statement. Your response must be in a memo format written directly to Leah. Permalink Reply
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