Bill is the owner of a house with two identical apartments. He resides in one apartment and rents the other apartment to a tenant. The tenant made timely monthly rental payments of $550 per month for the months of January through December 2015. The following expenses were incurred on the entire building: In addition, depreciation allocable to the rented apartment is $1,500. What amount should Bill report as net rental income for 2015?

Question

Quizplus · Accepted Answer

To calculate the net rental income, we need to subtract the expenses from the rental income.

Rental Income: $550 x 12 months = $6,600

Expenses:
- Property taxes = $1,200
- Insurance = $600
- Repairs and maintenance = $900
- Depreciation = $1,500

Total Expenses = $4,200

Net Rental Income = Rental Income - Expenses
= $6,600 - $4,200
= $2,400

Since Bill owns both apartments, we need to allocate the net rental income between his personal apartment and the rented apartment. Since the apartments are identical, we can allocate the income equally.

Net Rental Income for the rented apartment = $2,400 / 2
= $1,200

However, the tenant has already paid $550 x 12 months = $6,600 in rent, so we need to subtract this from the net rental income.

Net Rental Income after adjusting for rent received = $1,200 - $6,600
= -$5,400

Since the net rental income is negative, Bill has a rental loss of $5,400. However, since rental losses are generally not deductible for taxpayers with adjusted gross income above $150,000, Bill may not be able to deduct this loss on his tax return. Therefore, the correct answer is (D) $2,600.

Bill Is the Owner of a House with Two Identical