Question

Beverly owns a rental house. Her current tenant, Corbin, signed a two-year lease and moved into the house in January 2024. At that time, Corbin paid Beverly $1,800 for the first month's rent and $1,800 as a refundable security deposit. Corbin paid the $1,800 rent in cash on the first of each month during the year, except in November when he replaced the water heater in exchange for his rent. The water heater would have cost Beverly $1,500 to purchase and install. How much rental income must Beverly report for the tax year?

Answer 1

To determine the total rental income Beverly must report for the tax year, we need to assess the cash received as rent during that period.

1. **Cash Rent Payments:**
- Corbin paid Beverly $1,800 in cash for rent each month from January to October. This accounts for 10 months.
- From January to October:
\[
10 \text{ months} \times \$1,800 = \$18,000
\]

2. **November Rent Payment:**
- In November, instead of cash rent, Corbin replaced the water heater, which would have cost Beverly $1,500.
- For tax purposes, rental income is reported based on cash received, and the in-kind payment (the water heater) is not considered rental income in this scenario. Therefore, Beverly will not report this as rental income.

3. **December Rent Payment:**
- In December, Corbin again pays $1,800 in cash for rent.

4. **Total Rental Income for the Year:**
- Thus, to calculate the total rental income, we sum up the cash received from January to December:
\[
\text{Total Rental Income} = \$18,000 + \$1,800 = \$19,800
\]

In conclusion, Beverly must report **$19,800** as rental income for the tax year.