Question

Brad and Kate received $9,500 for rent from Mike and Janet, who are renting their home in Santa Ana, California. Brad and Kate did not use this property for personal use. The rent covers eight months from August 1 of the current year to March 31 of the following year. The amount also includes a security deposit of $1,500. How much should Brad and Kate report as rental income in the current tax year?

a. $1,500
b. $5,000
c. $8,000
d. $9,500

Answer 1

c. $8,000

Step-by-step explanation:

The security deposit is usually refundable and NOT part of the rental income and, therefore, it should be deducted from the total amount received when reporting rental income for the tax year.

Thus, Brad and Kate should report $8,000 as rental income in the current tax year.