44. IRS Adapted Problem. Mr. Garcia, a cash- basis taxpayer, owns an apartment b

Question

44. IRS Adapted Problem. Mr. Garcia, a cash- basis taxpayer, owns an apartment building His records reflect the following information for 2018: Tenant G paid cost of floor repairs that were Mr. Garcia's responsibility $950 Security deposits to be returned to tenants upon expiration of their leases in 2020 1,350 Advance rents received in December for the first six months of 2019 3,000 What is the amount of gross rental income Mr. Garcia should include in his gross income? a. $2,300 b. $3,000 c. $3,950 d. $4,350 e. $5,300

Explanation / Answer

Correct Answer:- c) $3,950.

The rent received in advance is taxable in the year in which it is received.

Security Deposits are not taxable since the landlord is under an obligation to return the amount of security deposits as and when the tenant vacates.

Further the amount paid by the tenant on repairs of floor which was landlord's responsiblilty is also taxable.

Thus in this case the gross rental income of Mr. Garcia amounts to $3,950. (Advance rent $3,000+Amount of repairs $950).

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