Ricky has rented a house from Sarah since last year.The rent is usually $900 per month,but Sarah reduced the monthly rent down to $800 for all twelve months this year in exchange for Ricky constructing an addition to the house.The addition has a fair market value of $33,000.How much total rental income must Sarah report this year?

Question

Quizplus · Accepted Answer

Since Sarah reduced the rent to $800 for all twelve months this year and Ricky constructed an addition to the house which has a fair market value of $33,000, then the total value of the rent this year is $800 x 12 = $9600. However, Sarah needs to report the fair market value of the addition as rental income which is $33,000. Therefore, the total rental income that Sarah must report this year is $33,000 + $9,600 = $42,600. Therefore, the answer is (C).

Ricky Has Rented a House from Sarah Since Last Year