In year 1 JP purchased a large single-story residential property. He paid $300,000 with $100,000 attributable to the value of the land, other aquisition costs are already factored into the price. Financial activity associated with the house for each year: Property tax of $12,000 yearly Insurance $1,200 yearly Mortgage interest $12,000 yearly Maintenance $1,200 yearly Utilities $2,400 yearly New roof in year 3 $10,000 one-time expense Christmas decorations $100 one-time expense December year 2 Purchase of furniture for rental room $1,200 one-time expense January year 2 Explain the tax consequences and tax rules for the following scenarios. Each scenario is mutually exclusive, meaning unless specifically indicated, a previous scenario should not affect a subsequent scenario. Be sure to provide the answer to the problems by showing the calculations as well as explaining the rules affecting the activity. Where a question is unclear or ambiguous, explain the ambiguity and answer the question.

1. JP rented the entire house to tenants from April year 4 to December year 5. In year 4 before tenants moved in, the house was empty but available on the market for 3 months. The monthly rental income was $1,000.