Tess owns a building in which she rents apartments to tenants and operates a res

Question

Tess owns a building in which she rents apartments to tenants and operates a restaurant. Which one of the following statements is incorrect?

a. If 60% of Tess’s gross income is from apartment rentals and 40% is from the restaurant, the rental operation and restaurant business must be treated as separate activities.

b. If 95% of Tess’s gross income is from apartment rentals and 5% is from the restaurant, she may treat the rental operation and the restaurant business as a single activity that is a rental activity.

c. If 5% of Tess’s gross income is from apartment rentals and 95% is from the restaurant, she may treat the rental operation and the restaurant business as a single activity that is a non-rental activity.

d. If 98% of Tess’s gross income is from apartment rentals and 2% is from the restaurant, the rental operation and the restaurant business must be treated as a single activity that is a rental activity.

Explanation / Answer

Two activities can be grouped as a single activity when a substantial portion (>80%) of the gross revenue is contributed by one activity.

So statements a.b.c are correct. However, the grouping of activities is an option not a mandatory rule as per law.

So statement d. saying the the rental operation and the restaurant business must be treated as a single activity that is a rental activity when 98% revenue comes from rental activity is wrong.

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