Pedro Owns 5 Rental Properties

question 13

Multiple Choice

Pedro owns 5 rental properties. He contracts with East Lake Properties, Inc., to manage the real estate. East Lake obtains tenants, negotiates leases, makes necessary repairs, pays expenses related to the properties, and remits monthly net receipts to Pedro.
I.Pedro's sale of the properties at a gain will result in a capital gain.
II.Pedro's sale of the properties at a loss results in an ordinary loss on his tax return.
​

• A)Only statement I is correct.
• B)Only statement II is correct.
• C)Both statements are correct.
• D)Neither statement is correct.

---

Definitions:

Liquidating Dividend

A type of dividend paid by a corporation out of its capital base, as opposed to its earnings, often signaling the company is dissolving.

Dividend Policy

A company's approach to distributing profits back to its shareholders, dictating how much to pay out as dividends and how often.

Alternate Dividend Policy

A strategy used by a company to vary its dividend payments to shareholders based on its earnings or investment opportunities.

Stock Dividend

A dividend payment made in the form of additional shares of the paying company's stock rather than cash.