Fundamentals of Taxation

Business

Quiz 8 :
Rental Property, Royalties, and Income From Flow-Through Entities

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Quiz 8 :
Rental Property, Royalties, and Income From Flow-Through Entities

Income tax is the tax paid by individuals, household and business entities to the government on the earnings that they have. The rules and regulations are supervised by IRS which is a government body. Form 1040 is the expanded and biggest tax form followed by 1040a.Rental property is the property which is leased by the owner to the tenant and tenant pays rent for this arrangement. These rental earnings are considered an income for the owner. There are several expenses also associated with these rental properties. As per taxation rules, there is difference between providing rental property and an owner conducting trade or business with respect to that property which he has rented but it is possible for owner of property to conduct trade or business from the rental property. This happens under circumstances when the owner of the rental property provides some chargeable services to the tenant like maintenance, maid, etc. and the services are provided under professional capacity, not as informal help.

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Income tax is the tax paid by individuals, household and business entities to the government on the earnings that they have. The rules and regulations are supervised by IRS which is a government body. Form 1040 is the expanded and biggest tax form followed by 1040a.Rental property is the property which is leased by the owner to the tenant and tenant pays rent for this arrangement. These rental earnings are considered an income for the owner. There are several expenses also associated with these rental properties. Deductible is the amount which is allowed to be deducted from the income of the individual and is not the part of taxable income.The criteria for rental expenses to be deductible are as follows: • Ordinary: Ordinary expenses are those expenses which are common and customary in case of rental properties. • Necessary: These expenses are those which are correct and needed by tenant, and is not part of owner's regular activities. Some of the examples of deductibles associated with rental expenses are traveling cost, maintenance and repair expense, depreciation, interest costs, taxes, etc. The capital expenditure i. e. the expenditures which increase the value of property or increases life of property are not deductible expenditures.

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