Question

Pedro owns 5 rental properties. He contracts with East Lake Properties, Inc., to manage the real estate. East Lake obtains tenants, negotiates leases, makes necessary repairs, pays expenses related to the properties, and remits monthly net receipts to Pedro.

I. Pedro's sale of the properties at a gain will result in a capital gain.
II. Pedro's sale of the properties at a loss results in an ordinary loss on his tax return.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.

Answer 1

Both statements I and II are correct.

Step-by-step explanation:

Pedro's sale of the properties at a gain will result in a capital gain.

Pedro's sale of the properties at a loss results in an ordinary loss on his tax return.

Both statements I and II are correct.