TAILIEUCHUNG - Leture Fundamentals of Taxation 2014 - Chapter 8: Rental property, royalties, and income from flow-through entities

When you have completed this chapter, you should understand the following learning objectives: Explain how income and expenses are recognized and reported for rental property, understand how to report personal use of a rental property (vacation home), know how to report royalty income on Schedule E,. | Chapter 8 Rental Property, Royalties, and Income From Flow-Through Entities “There is no simple tax, at least no simple tax that is also fair.” -- Joel Slemrod 1 Chapter 8 – Rental property, royalties and income from flow through entities. LO #1: Rental Property Income and expenses from rental property are generally reported on Schedule E. All ordinary and necessary expenses related to a rental property are deductible. 8-2 Generally, income and expense from rental properties are reported on the Schedule E. Any ordinary and necessary expenses related to a rental property is deductible form rental income. 2 LO #1 Rental Property Ordinary expense is an expense that is customary or usual for the rental property activity. Examples of common rental activity expenses include advertising, repairs and maintenance, management fees and depreciation. 8-3 Ordinary expense is any expense that is customary or usual for that particular business or activity. In this case, a rental property activity. Some examples of common rental activity expenses include advertising, repairs and maintenance, management fees and depreciation. 3 8-4 LO #1: Rental Property Rental property is depreciated using straight-line depreciation over or 39 years. The IRS depreciation tables are used to calculate the depreciation amount. Depreciate structure only. The tables to use for rental properties are found in Ch 6. Rental properties must be depreciated using straight line depreciation over years for residential properties or 39 years for non-residential properties. When calculating the depreciation expense, use the IRS depreciation tables. 4 LO #1 Rental Property If a taxpayer’s rental property is considered a trade or a business, the related income and expenses are reported on Schedule C. Generally, if a taxpayer materially participates in the rental activity and is considered a real estate professional, then the activity is considered a trade or business. 8-5 A rental property should be .

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