Question

Bill is the owner of a house with two identical apartments. He resides in one apartment and rents the other apartment to a tenant. The tenant made timely monthly rental payments of $550 per month for the months of January through December 2018. The following expenses were incurred on the entire building:

Utilities $3, 600
Maintenance and repairs $900
Insurance $500

In addition, depreciation allocable to the rented apartment is $1, 500.What amount should Bill report as net rental income for 2015?

A. $100
B. $2, 600
C. $0
D. $1, 400
E. None of these choices are correct.

Answer 1

B. $2,600

Step-by-step explanation:

The computation of the net rental income is shown below:

= Monthly rental payments × total number of months in a year - (utilities + maintenance & repairs + insurance) × percentage - depreciation expense

= $550 × 12 months - ($3,600 + $900 + $500) × 50% - $1,500

= $6,600 - $2,500 - $1,500

= $2,600

Since only one apartment is on rent so we considered the expenses of the building at 50% not full value and the same is applied above