Bill is the owner of a house with two identical apartments.He resides in one apartment and rents the other apartment to a tenant.The tenant made timely monthly rental payments of $550 per month for the months of January through December 2018.The following expenses were incurred on the entire building: $$\begin{array} { l r }
\text { Utilities } & \$ 3,600 \
\text { Maintenance and repairs } & 900 \
\text { Insurance } & 500
\end{array}$$ In addition, depreciation allocable to the rented apartment is $1,500.What amount should Bill report as net rental income for 2018?
A)$0
B)$100
C)$1,400
D)$2,600
E)None of the above

Question

Bill is the owner of a house with two identical apartments.He resides in one apartment and rents the other apartment to a tenant.The tenant made timely monthly rental payments of $550 per month for the months of January through December 2018.The following expenses were incurred on the entire building: $$\begin{array} { l r } 
\text { Utilities } & \$ 3,600 \
\text { Maintenance and repairs } & 900 \
\text { Insurance } & 500
\end{array}$$ In addition, depreciation allocable to the rented apartment is $1,500.What amount should Bill report as net rental income for 2018?
A)$0
B)$100
C)$1,400
D)$2,600
E)None of the above

Quizplus · Accepted Answer

To calculate the net rental income, we need to subtract all the expenses from the rental income.

Rental income = $550/month * 12 months = $6,600

Expenses:
Utilities = $3,600
Maintenance and repairs = $900
Insurance = $500
Depreciation = $1,500/2 = $750 (because only one of the apartments is rented)

Total expenses = $3,600 + $900 + $500 + $750 = $5,750

Net rental income = Rental income - Expenses = $6,600 - $5,750 = $850

Since the question asks for the net rental income for the entire year, we cannot divide by two to find the rental income for one apartment. Therefore, the correct answer is D) $2,600, which is the net rental income for both apartments combined.