Determine income from the property

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Question - Zara Kim is the owner of two residential rental properties, 209 Old Monk Avenue, and 12 James Street. These properties were purchased six years ago for $525,000 and $600,000, respectively.

In the current year, 209 Old Monk Avenue was sold for $850,000. A reasonable allocation of this amount is considered to be 75% to the building and 25% to the land. The following income and expenses were incurred in renting out the two properties in the current year:

Rental $80,000

Interest on mortgage (50,000)

Operating costs (25,000)

Promotion costs for sale of property (5,000)

Net income 0

There are no meal or entertainment expenses included in the $5,000 of sales promotion costs. The opening undepreciated capital cost of 209 Old Monk Avenue was $383,500 and that of 12 James Street was $480,000.

Required - Zara has asked you to determine her income from the property, assuming she wishes to report the least amount possible for tax purposes in the current year.

Reference no: EM132847563

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