Bonnie's sister, Diane, wants to open a restaurant. Because Diane is short of funds, Bonnie purchases the building and leases it to Diane. No agreement is signed, and Bonnie tells Diane not to worry about paying rent until the cash flow can support it. Also, Bonnie promises not to sell the property to anyone other than Diane.
I.Any expenditures Bonnie makes regarding the building would be classified as production of income expenses.
II.The building rental has the characteristics of a gift.
III.The dominant motive in acquiring the building is to earn an economic benefit (profit).
IV.Bonnie's property tax expenses related to the property are deductible.

Question

Bonnie's sister, Diane, wants to open a restaurant. Because Diane is short of funds, Bonnie purchases the building and leases it to Diane. No agreement is signed, and Bonnie tells Diane not to worry about paying rent until the cash flow can support it. Also, Bonnie promises not to sell the property to anyone other than Diane.
I.Any expenditures Bonnie makes regarding the building would be classified as production of income expenses.
II.The building rental has the characteristics of a gift.
III.The dominant motive in acquiring the building is to earn an economic benefit (profit).
IV.Bonnie's property tax expenses related to the property are deductible.
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Quizplus · Accepted Answer

Statement II is correct because Bonnie leased the building to Diane without any written agreement and without immediate payment, indicating a gift-like quality.
Statement IV is correct because property tax expenses related to a rental property are deductible.
Statement I is incorrect because expenditures related to the building would be classified as rental property expenses, not production of income expenses.
Statement III is not applicable as it is not a statement but rather a classification, and also because it is not relevant or necessary to the scenario.

Bonnie's Sister, Diane, Wants to Open a Restaurant