Question 1

A primarily rental property may report its income and expenses on a Schedule E.

Accepted Answer

Schedule E is used to report income and expenses from rental properties.

Question 2

Royalty income is income received from the use of books,stories,plays,copyrights,trademarks,etc.owned by the taxpayer.

Accepted Answer

Royalty income is income received from the use of intellectual property owned by the taxpayer, including books, stories, plays, copyrights, trademarks, etc.

Question 3

Rental activities by definition are passive activities.

Accepted Answer

Rental activities are considered passive activities, according to the IRS. This means that they are generally not subject to self-employment tax and that losses may be limited by passive activity loss rules.

Question 4

Alexis's cabin in the mountains that was rented for 125 days and used by her for 12 days is considered personal/rental property.

Accepted Answer

The answer of Alexis's cabin in the mountains that was...

Question 5

In the case of a primarily personal property,a taxpayer may report a net loss as long as the correct allocation method was used.

Accepted Answer

For tax purposes, losses on the sale or disposition of personal use property are generally not deductible. Personal use property typically includes items like your home, car, furniture, or clothing used for personal purposes, and the tax code does not allow deductions for losses on such property.

Question 6

Rental properties that are also used as vacation homes fall under one of two categories: 1)primarily rental; or 2)primarily personal.

Accepted Answer

The answer of Rental properties that are also used as...

Question 7

Flow-through entities include,but are not limited to,LLCs,S Corporations,trusts and estates.

Accepted Answer

Flow-through entities are entities whose income or losses flow through to their owners or beneficiaries for tax purposes. Examples of flow-through entities include LLCs, S corporations, trusts, and estates.

Question 8

The two methods that may be used to allocate expenses between personal and rental use of properties are the IRS method and the Tax Court method.

Accepted Answer

This is true. The IRS method and the Tax Court method are two options for allocating expenses between personal and rental use of properties.

Question 9

Rental income may be reported on a Schedule A or a Schedule C.

Accepted Answer

Rental income is generally reported on a Schedule E, not a Schedule A or C. Schedule A is for itemized deductions like state and local taxes, mortgage interest, and charitable contributions, while Schedule C is for self-employment income and expenses for a business.

Question 10

Joey and Susan rented their house for 2 weeks and used it for personal use for the remainder of the year.The house is considered personal/rental property.

Accepted Answer

The answer of Joey and Susan rented their house for...

Question 11

If a taxpayer materially participates in his/her rental activity as a real estate professional,the activity is considered a trade or business and not a passive activity.

Accepted Answer

If a taxpayer meets the criteria to qualify as a real estate professional and materially participates in the rental activity, it is considered a trade or business and not a passive activity subject to passive activity loss rules.

Question 12

A taxpayer may use a Schedule C or a Schedule E to report royalty income.

Accepted Answer

A taxpayer who receives royalty income may report it on either a Schedule C (Profit or Loss from Business) if the royalty income is related to a business they own and operate or a Schedule E (Supplemental Income and Loss) if the royalty income is from investments or rental property.

Question 13

A taxpayer with a rental activity may be allowed up to $25,000 of rental losses against other active or portfolio)income.

Accepted Answer

This is true according to IRS rules. However, the amount allowed as a deduction may be reduced or eliminated based on factors such as the taxpayer's modified adjusted gross income and the level of participation in the rental activity.

Question 14

When royalties are paid,the amount paid is reported to the recipient by the payer on a Form 1099-MISC.

Accepted Answer

This is true. Royalties are reported to the recipient on a Form 1099-MISC by the payer.

Question 15

In general,losses from passive activities may be deducted only to the extent that there is passive income.

Accepted Answer

This is because passive activity losses are considered a special type of deduction and can only be used to offset passive income. If there is no passive income, the losses cannot be deducted in the current year but can be carried forward to future years.

Question 16

The income from a partnership to its partner is considered self-employment income.

Accepted Answer

The IRS considers the income from a partnership to its partner as self-employment income. This is because the partner is considered an owner of the business and is actively involved in running the partnership. As such, the partner is responsible for paying self-employment taxes on their share of the partnership's profits.

Question 17

If a tenant provides service for the rental property in lieu of rental payment,the fair market value of the service is considered rental income and must be reported as income.

Accepted Answer

According to IRS guidelines, if a tenant provides services in exchange for rent, the fair market value of those services are considered rental income and must be reported as such on tax returns.

Question 18

All advance rental payments received,including security deposits for a rental property,must be reported as income when received.

Accepted Answer

Advance rental payments are reported as income in the year received. However, security deposits are not reported as income if they are intended to be returned to the tenant at the end of the lease. They only become income if they are kept due to the tenant not meeting the terms of the lease.

Question 19

All rental properties are depreciated using the straight-line method over 39 years.

Accepted Answer

Residential rental properties are depreciated over 27.5 years using the straight-line method, while non-residential (commercial) properties are depreciated over 39 years.

Question 20

Flow-through entities file "informational returns."

Accepted Answer

Flow-through entities, such as partnerships, LLCs, and S corporations, file informational returns to report the income, deductions, and credits of their owners or shareholders. This is known as a "pass-through" taxation where the profits and losses of the business are passed through to the individual owners or shareholders, who then report them on their personal tax returns.

Quiz 8: Rental Property, royalties, and Income From Flow-Through Entities Line 17, form 1040, and Schedule E