Question

alph owns a building that he is trying to lease. Ralph is a calendar-year, cash-method taxpayer and is trying to evaluate the tax consequences of three different lease arrangements. Under lease 1, the building rents for $500 per month, payable on the first of the next month, and the tenant must make a $500 security deposit that is refunded at the end of the lease. Under lease 2, the building rents for $5,500 per year, payable at the time the lease is signed, but no security deposit is required. Under lease 3, the building rents for $500 per month, payable at the beginning of each month, and the tenant must pay a security deposit of $1,000 that is to be applied toward the rent for the last two months of the lease. (Leave no answers blank. Enter zero if applicable.) a. What amounts are include

Answer 1

1. if the tenant signs the lease contract 1 on December 1, Ralph will not include any income in his current tax year. Security deposits are not considered income.
2. if the tenant signs lease contract 2, Ralph will have to include $5,500 in his income for the current year.
3. if the tenant signs lease contract 3, Ralph will have to include $1500 in his income for the current year. The $1,000 security deposit represents the last two monthly lease payments.