Kenneth Lived in His Home for the Entire Year Except

question 55

Multiple Choice

Kenneth lived in his home for the entire year except for when he rented his home (near a very nice ski resort) to a married couple for 14 days in December. The couple paid Kenneth $14,000 in rent for the two weeks. Kenneth incurred $1,000 in direct expenses relating to the home for the 14 days. Which of the following statements accurately describes the manner in which Kenneth should report his rental receipts and expenses for tax purposes?

• A) Kenneth would include the rental receipts in gross income and deduct the rental expenses for AGI.
• B) Kenneth would exclude the rental receipts from gross income and deduct the rental expenses for AGI.
• C) Kenneth would include the rental receipts in gross income and would not deduct the rental expenses because he used the residence for personal purposes for most of the year.
• D) Kenneth would exclude the rental receipts, and he would not deduct the rental expenses.

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Definitions:

Market Value

The current price at which an asset or company can be bought or sold in the marketplace.

Net Present Value

The calculation used to determine the current value of a series of future cash flows, adjusted for time and interest.

Acquisition Cost

is the total cost incurred to acquire an asset, investment, or property, which includes the purchase price and all associated expenses.

Common Stock

A type of security that represents ownership in a corporation, giving holders voting rights and a share in the company's profits via dividends.