Question

Match the type of income with the U.S. tax sourcing rules for the income:

a) Rents
b) Royalties
c) Gains and losses on real property
d) Interest and dividends

Answer 1

Rents are sourced based on the location of the real estate, royalties are sourced based on where the intangible property is used, gains and losses on real property depend on the location of the property, and interest and dividends are sourced based on the residence of the payer.

Step-by-step explanation:

According to the U.S. tax sourcing rules, different types of income are treated differently when it comes to taxation. Here is how each type of income is matched with the sourcing rules:

1. Rents: Rental income from real estate located within the U.S. is generally sourced to the U.S. for tax purposes.
2. Royalties: Royalty income is generally sourced based on where the intangible property is used, rather than where it is created or owned. For example, if a patent is licensed for use in the U.S., the royalty income is sourced to the U.S.
3. Gains and losses on real property: The sourcing of gains and losses on real property depends on whether the property is located within the U.S. or outside the U.S. Gains and losses on U.S. real property are generally sourced to the U.S.
4. Interest and dividends: Interest and dividends are generally sourced based on the residence of the payer. If the payer is a U.S. person, the interest or dividends are sourced to the U.S.