Multiple Choice Questions
1. On August 1 of the current year, Jennifer and Tyler purchased a cabin for $950,000. Of that amount, $500,000 was for the land. How much depreciation deduction can Jennifer and Tyler take in the current year assuming that the cabin was rented starting on the purchase date? (You may need to refer to the depreciation tables in Chapter 6.)
a. $0.
b. $6,138.
c. $8,865.
d. $16,364.
2. Jermaine owns a rental home in Lake Tahoe and traveled there from his home in San Francisco for maintenance and repairs three times this year. The round trip from San Francisco to Lake Tahoe is approximately 167 miles. How much travel cost can Jermaine deduct for the current year related to the rental home in Lake Tahoe?
a. $0.
b. $92.
c $281.
d. $305.
3. Dennis receives $11,100 during the current tax year from Blanca for some office space in Anaheim, California. 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 Dennis report as rental income in the current tax year?
a. $1,200.
b. $6,000.
c. $9,600.
d. $11,100.
4. Ginny owns a house in northern Wisconsin that she rents for $1,600 per month. Ginny does not use the property personally. While she was in Europe for Christmas, the water heater on the property failed, and her tenants repaired it for $1,200. For the following month’s rent (January), her tenants paid her $400 for rent ($1,600 - $1,200). What amounts should Ginny include for rental income and repair expense, respectively, for January?
a. $400; $0.
b. $1,200; $400.
c. $1,600; $400.
d. $1,600; $1,200.
5. James owns a home in Lake Tahoe, Nevada, that he rented for $1,600 for two 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 $2,500 in depreciation. How much rental income from the Lake Tahoe home would James report for the current year?
a. $0.
b. $567.
c. $1,600.
d. $9,100.
6. Assume the same facts as Question 22, except that James rented the Lake Tahoe home for 40 days for $4,600. What is his net income or loss from the rental of his home (without considering the passive loss limitation)? Use the IRS method for allocation of expenses.
a. $0.
b. $1,925 net income.
c. $4,600 net income.
d. $6,100 net loss.
7. Which of the following items is not deductible as rental expense?
a. Advertising.
b. Repairs and maintenance.
c. New bathroom addition.
d. Insurance.
8. Darren and Nikki own a cabin in Mammoth, California. During the year, they rented it for 45 days for $9,000 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 $8,000 in mortgage interest, $2,000 in property taxes, $1,200 in utilities, $750 in maintenance, and $4,000 in depreciation. What is their net income or loss from their cabin rental (without considering the passive loss limitation)? Use the IRS method for allocation of expenses.
a. $0.
b. $3,592 net loss.
c. $6,950 net loss.
d. $9,000 net income.