Question

Corbin owns a rental property. His tenant, Michael, signed a two-year lease and moved in January 2025. At that time, Michael paid Corbin $1,800 for the first month's rent and $1,800 as a refundable security deposit. Michael paid $1,800 in cash on the first of each month, except in November, when he installed a new water heater in exchange for that month's rent. The water heater would have cost Corbin $1,500 to purchase and install. How much rental income must Corbin report for the tax year?
$19,800
$21,300
$21,600
$23,100

Answer 1

Corbin must report $21,300.

Reason: Exclude the refundable $1,800 security deposit. Rent received = 11 cash monthly rents (Jan–Oct, Dec) = 11 × $1,800 = $19,800, plus the November noncash payment (water heater) valued at $1,500. Total = $19,800 + $1,500 = $21,300.