Question

XYZ Corporation rented construction equipment in 2018 and 2019, which it used to build a storage facility. The total rent paid for the equipment was $40,000 with $10,000 paid in 2018 and $30,000 paid in 2019. The storage facility was completed in 2019. What amount of rent expense may XYZ Corporation deduct on its 2019 income tax return?

a. $30,000b. None of the answers are correct.c. $40,000d. $10,000

Answer 1

B) None of the answers are correct.

• the correct amount is $0

Step-by-step explanation:

When a company leases or rents equipment that it is going to use to build some type of asset for its own use, it must capitalize the rent amount and add it to the construction cost of the asset. Then this expense will be depreciated along with the asset.

In this case, the $40,000 spent in rent (during 2018 and 2019) will be included in the construction cost of the storage facility.