Kenneth Lived in His Home for the Entire Year Except

question 54

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:

Profit-Maximizing

The process or strategy of adjusting production and pricing to achieve the highest possible profit.

Socially Optimal Price

The price of a product that results in the most efficient allocation of an economy's resources and that is equal to the marginal cost of the product.

Marginal Cost

The expenses associated with creating an extra unit of a good or service.

Natural Monopoly

A market condition where the most efficient scale of production is achieved when a single firm supplies the entire market due to high fixed or start-up costs.