Question

Shaheen owns 2 rental properties. She hires her 21 year old son, who is a junior at State College, to obtain tenants, negotiate leases, make arrangements for repairs, and pay expenses related to the properties.

I. Shaheen's sale of the properties will result in a capital gain or loss.
II. Shaheen's sale of the properties at a loss results in a current-year loss deduction of no more than $3,000.​
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.

Answer 1

Shaheen's sale of rental properties will result in a capital gain or loss, and the deduction of a capital loss is typically limited to $3,000 annually. However, the specific deductibility may vary based on the use of the property and individual tax situations.

Step-by-step explanation:

When examining the statements provided about Shaheen's rental properties, it's important to consider the tax implications of selling real estate investments. Statement I is correct: Shaheen's sale of the properties will result in a capital gain or loss. This is determined by the difference between the properties' selling price and their adjusted basis, which is typically the original purchase price plus any capital improvements minus any depreciation taken. Statement II may not be accurate as written because the specific limit on the deduction of capital losses depends on the designation of the property and Shaheen's tax situation. Generally, individual taxpayers can deduct capital losses up to $3,000 against ordinary income if the losses exceed capital gains. However, if Shaheen's properties are considered as used in a trade or business, the losses could be fully deductible against other income without the $3,000 limitation. The correct answer, considering the information given and general tax rules, is: (c) Both statements are correct. However, it's important to consult a tax professional for specific circumstances.