Question 2. Emma owns and runs a rental business, and is a cash method, calendar year taxpayer. Emma has hired her brother Danny to serve as an apartment manager, and so Danny lives on the premises, in an apartment next to Emma's office. Danny's door has a slot in it, where rent payments can be dropped off after business hours. Danny and Emma both have keys to both Danny's apartment, and to Emma's office. During December 2018, the following transactions took place, and none of these items have been added to Emma's income yet. a. One tenant, Sandy, signed a lease, and agreed to pay for one year's worth of rent ($800 per month) plus a security deposit of $ 700, and last month's rent in advance. The total due was thus $ 11,100, and Sandy transferred a car worth $ 11,100 to Emma as payment on December 7th 2018. The lease began on January 1st 2019. b. Another tenant, Rex, was behind in his rent, and was close to being evicted. Rex told Emma to give him till the end of the month to catch up, and Emma grudgingly said OK. Danny waited for Rex on the 31st of December until 3 p.m., but then closed up the apartment and office (Emma was out of town). Rex came home late, 10 p.m., but did put a check for the late rent of five months at $ 800 a month in full in the drop slot. C. A third tenant, Cleo, was also behind in her rent, and though she did not write Emma a check, she did write up and give a note payable to Emma on 12-30-2018 for the amount of rent and signed it. The note had a face amount of the amount of rent due, $ 3,600, but had a below market rate of interest stated, and thus the note had a fair market value of $3,200. How much income should Emma recognize from these transactions in 2018? Question 2. Emma owns and runs a rental business, and is a cash method, calendar year taxpayer. Emma has hired her brother Danny to serve as an apartment manager, and so Danny lives on the premises, in an apartment next to Emma's office. Danny's door has a slot in it, where rent payments can be dropped off after business hours. Danny and Emma both have keys to both Danny's apartment, and to Emma's office. During December 2018, the following transactions took place, and none of these items have been added to Emma's income yet. a. One tenant, Sandy, signed a lease, and agreed to pay for one year's worth of rent ($800 per month) plus a security deposit of $ 700, and last month's rent in advance. The total due was thus $ 11,100, and Sandy transferred a car worth $ 11,100 to Emma as payment on December 7th 2018. The lease began on January 1st 2019. b. Another tenant, Rex, was behind in his rent, and was close to being evicted. Rex told Emma to give him till the end of the month to catch up, and Emma grudgingly said OK. Danny waited for Rex on the 31st of December until 3 p.m., but then closed up the apartment and office (Emma was out of town). Rex came home late, 10 p.m., but did put a check for the late rent of five months at $ 800 a month in full in the drop slot. C. A third tenant, Cleo, was also behind in her rent, and though she did not write Emma a check, she did write up and give a note payable to Emma on 12-30-2018 for the amount of rent and signed it. The note had a face amount of the amount of rent due, $ 3,600, but had a below market rate of interest stated, and thus the note had a fair market value of $3,200. How much income should Emma recognize from these transactions in 2018
