Simon Leasing, Inc., an accrual basis taxpayer, owns and leases residential, business, and industrial properties. During the current year it collects $800,000 in rents on its various properties. Included in the $800,000 in rents is $80,000 of the last month's rent payments it requires on new rentals. The company also receives $30,000 of security deposits on new residential rentals. In addition, one of its business tenants pays $40,000 to cancel a long-term lease during the year.
Simon Leasing, Inc., also sold one of its industrial buildings for $1,700,000. Simon Leasing had purchased the building for $900,000 in 1986. The tenant made improvements to the building valued at $100,000 in 1986. At the termination of the original lease last year, the building was worth $1,600,000 ($150,000 of that was attributable to the improvements made by the tenant) and the adjusted basis was $500,000. The adjusted basis at the date of sale is $460,000. How much income must Simon Leasing, Inc., recognize in the current year? Explain how you arrived at the gross amount in terms of the income tax concepts.

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The Answer of Simon Leasing, Inc., an accrual basis taxpayer, owns and leases residential, business, and industrial properties. During the current year it collects $800,000 in rents on its various properties. Included in the $800,000 in rents is $80,000 of the last month's rent payments it requires on new rentals. The company also receives $30,000 of security deposits on new residential rentals. In addition, one of its business tenants pays $40,000 to cancel a long-term lease during the year.
Simon Leasing, Inc., also sold one of its industrial buildings for $1,700,000. Simon Leasing had purchased the building for $900,000 in 1986. The tenant made improvements to the building valued at $100,000 in 1986. At the termination of the original lease last year, the building was worth $1,600,000 ($150,000 of that was attributable to the improvements made by the tenant) and the adjusted basis was $500,000. The adjusted basis at the date of sale is $460,000. How much income must Simon Leasing, Inc., recognize in the current year? Explain how you arrived at the gross amount in terms of the income tax concepts.