Benton leases a Park City condominium from Walnut Rental for $750 a month. Benton operates a carpet store in Park City. During October and November Benton does not make his monthly payments. Instead, Walnut allows him to paint another rental property of Walnut's instead of paying rent. What is Walnut's tax treatment of these events?
I.Walnut can capitalize the $1,500 and depreciate it.
II.Walnut can deduct the $1,500 as an operating expense.
III.Walnut includes the $1,500 in its gross income for the year.
IV.The $1,500 must be added to the basis of the condominium.

Question

Benton leases a Park City condominium from Walnut Rental for $750 a month. Benton operates a carpet store in Park City. During October and November Benton does not make his monthly payments. Instead, Walnut allows him to paint another rental property of Walnut's instead of paying rent. What is Walnut's tax treatment of these events?
I.Walnut can capitalize the $1,500 and depreciate it.
II.Walnut can deduct the $1,500 as an operating expense.
III.Walnut includes the $1,500 in its gross income for the year.
IV.The $1,500 must be added to the basis of the condominium.
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Quizplus · Accepted Answer

Walnut can deduct the $1,500 as an operating expense because it represents the value of the services received in lieu of rent, which is a common business expense. Additionally, Walnut must include the $1,500 in its gross income for the year as it represents rental income received, albeit in the form of services rather than cash.

Benton Leases a Park City Condominium from Walnut Rental for $750