Reflection on Rental Income for Taxation

What is the amount of gross rental income Mr. Zurn should include on his 2016 income tax return?

A. $400

B. $800

C. $2400

D. $2800

Final answer:

Mr. Zurn should include $2400 as gross rental income on his 2016 income tax return. This represents the advance payment for the first half of the 2017 rent, which was received in 2016. The correct option is (C).

Explanation:

Zurn should include the $2400 payment for the first 6 months' rent in 2017 as gross rental income on his 2016 income tax return. The key principle is that income should be reported in the year it is received, regardless of when the services or benefits associated with the income are provided.

The security deposit of $400 is not considered rental income because it is refundable and is intended to cover potential damages to the property. Security deposits are not included as income until they are retained by the landlord due to damages or other reasons.

Therefore, the calculation is straightforward:

Gross rental income = Payment for 6 months' rent

= $2400

Mr. Zurn should include $2400 as gross rental income on his 2016 income tax return. This represents the advance payment for the first half of the 2017 rent, which was received in 2016. The security deposit is not included in the gross rental income.