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Chapter 08
Rental Property, Royalties, and Income from Flow-Through Entities
True / False Questions
1. Rental income is generally reported on Schedule C.
True False
2. Capital improvements on rental properties may be deducted in the current year.
True False
3. A security deposit for a rental property is not reported as income.
True False
4. Residential rental properties are depreciated using the straight-line method over 27½ years.
True False
5. If a tenant pays an expense normally paid by the taxpayer (landlord) in lieu of rent (or the full
rent), that expense is not considered part of rental income to the taxpayer.
True False
6. Rental properties that are also used as vacation homes fall under one of three categories:
(1) primarily rental,

(2) primarily personal, and
(3) personal/rental.
True False
8-1
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
7. If a family member of a taxpayer uses the rental property and pays full rental value, then
those days rented are considered rental days.
True False
8. In the case of personal/rental property, a taxpayer can deduct expenses only to the extent
that there is rental income.
True False
9. Jennifer's beach house rented for 175 days and used by her and her family for 15 days, is
considered personal/rental property.
True False
10. Jonathan and Sandy rented their cabin for 123 days and used the cabin for personal use for
55 days. The cabin is considered personal/rental property.
True False
11. There are two methods available to taxpayers to allocate expenses between personal and
rental use of properties.
True False
12. A property rented for less than 15 days and used for personal use the remainder of the year,
should have the rental income reported on Schedule E.
True False
13. A personal/rental property (that is not a trade or business) may report its income and
expenses on Schedule A.
True False
14. A royalty is a payment for the right to use intangible property.
True False
8-2
15. When royalties are paid, the amount paid is reported to the recipient by the payer at the end
of the year on a Schedule K-1.
True False
16. Generally, a taxpayer uses Schedule C to report royalty income.
True False
17. Royalties resulting from a non-trade or non-business activity should be reported on a

Schedule E.
True False
18. Entities such as partnerships, LLC's, and S Corporations are known as flow-through entities.
True False
19. Flow-through entities are named as such because they are taxed continuously.
True False
20. Flow-through entities supply each owner at the end of the year with a Schedule E, indicating
his/her income and expenses to report.
True False
21. Flow-through entities file "informational returns."
True False
22. The income from a partnership to its partner is considered self-employment income.
True False
23. Rental activities by definition are passive activities.
True False
8-3
24. If a taxpayer materially participates in his/her rental activity as a real estate professional, the
activity is considered a trade or business and not a passive activity.
True False
25. A taxpayer with a rental activity may be allowed up to $25,000 of rental losses against other
(active or portfolio) income.
True False
26. Rental income may be reported on a Schedule A or a Schedule C.
True False
27. All rental properties are depreciated using the straight-line method over 39 years.
True False
28. If a tenant provides service for the rental property in lieu of rental payment, the fair market
value of the service is considered rental income and must be reported as income.
True False
29. All advance rental payments received, including security deposits for a rental property, must
be reported as income when received.
True False
30. Alexis' cabin in the mountains that was rented for 125 days and used by her for 12 days is
True False
31. Joey and Susan rented their house for 2 weeks and used it for personal use for the remainder
of the year. The house is considered personal/rental property.
True False
8-4
32. Rental properties that are also used as vacation homes fall under one of two categories:
(1) primarily rental; or

(2) primarily personal.
True False
33. In the case of a primarily personal property, a taxpayer may report a net loss as long as the
correct allocation method was used.
True False
34. The two methods that may be used to allocate expenses between personal and rental use of
properties are the IRS method and the Tax Court method.
True False
35. A primarily rental property may report its income and expenses on a Schedule E.
True False
36. A taxpayer may use a Schedule C or a Schedule E to report royalty income.
True False
37. Royalty income is income received from the use of books, stories, plays, copyrights,
trademarks, etc. owned by the taxpayer.
True False
38. When royalties are paid, the amount paid is reported to the recipient by the payer on a Form
1099-MISC.
True False
8-5
39. Flow-through entities include, but are not limited to, LLCs, S Corporations, trusts and
estates.
True False
40. In general, losses from passive activities may be deducted only to the extent that there is
passive income.
True False
Multiple Choice Questions
41. On June 1 of the current year, Jack and Angie purchased a rental beach house for $900,000
and rented it right away. Of that amount, $600,000 was for the land value. How much
depreciation deduction can Jack and Angie take in the current year? (You may need to refer
to the depreciation tables.)
A. $5,910
B. $10,909
C. $11,820
D. $17,730
42. Jamison owns a rental cabin in Mammoth, and travels there for maintenance three times a
year, between January and June. The round trip to Mammoth from San Diego where Jamison
lives, is approximately 405 miles. How much travel costs can Jamison deduct per year related
to his rental cabin? (Round your answer to the nearest whole number)
A. $248
B. $680
C. $743
D. $1,352
8-6
43. Brad and Kate received $9,500 for rent from Mike and Janet, who are renting their home in
Santa Ana, California. Brad and Kate did not use this property for personal use. The rent
covers eight months from August 1 of the current year to March 31 of the following year. The
amount also includes a security deposit of $1,500. How much should Brad and Kate report as
rental income in the current tax year?
A. $1,500
B. $5,000
C. $8,000
D. $9,500
44. Georgia owns a home in Colorado that she rents for $1,200 per month (she does not use the
home personally). While she was in Europe in November, the roof in her rental home leaked
and her tenant repaired it for $900. For the following month's rent (December), her tenant
paid her $300 for rent ($1,200 - $900). What amounts should Georgia include for rental
income and repair expense, respectively, for December?
A. $300; $900
B. $900; $300
C. $1,200; $300
D. $1,200; $900
45. If a taxpayer materially participates in a real estate activity as a real estate professional, the
income and expenses of the activity should be reported on:
A. Schedule A
B. Schedule C
C. Schedule E
D. None of these
8-7
46. Naomi and Matt received the following amounts from a tenant who is renting their
condominium during the current year (rent is $1,500 per month):
Rent for two months would normally have been $3,000, but the tenant paid $800 for a
plumbing repair. The repair would normally have been paid by Naomi and Matt but the
problem occurred while they were out of town. How much should Naomi and Matt report as
rental income for the current tax year?
A. $2,200
B. $2,400
C. $3,000
D. $4,600
47. Which of the following is not considered an ordinary expense for a rental activity?
A. Advertising
B. Insurance
C. Property taxes
D. All of these are deductible as ordinary expense
48. Which of the following is not considered a capital improvement for a rental activity?
A. Addition of a bathroom
B. Replacement of the roof
C. Repair of a leaky water pipe
D. New landscaping
8-8
49. What is the proper tax treatment of capital improvements for a residential or commercial
rental property?
A. IRC section 179 may be claimed.

B. Can be deducted as ordinary expenses.
C. Must be depreciated using the double-declining balance method.
D. Must be depreciated using straight-line over 27½ or 39 years.
50. Which of the following expense items is(are) deductible as rental expense for a rental
property?
A. Travel related to the property

B. Management fees
C. Repairs and maintenance
D. All are deductible expenses
51. May owns a four-plex in Garden Grove, CA. She rents out 3 units and lives in the fourth. Her
income and expenses for the entire four-plex are as follows: mortgage interest $8,200,
property taxes $9,000, insurance $3,000, utilities $2,000, repairs and maintenance $1,000,
depreciation on the entire complex of $5,000, and rental income of $25,000. What amount of
net rental income or loss should May report on her current tax return?
A. $3,200 net loss

B. $3,850 net income
C. $21,150 net loss
D. $25,000 net income
52. A property that has been rented for 120 days and used for personal use for 13 days should be
categorized as:
A. Primarily rental
B. Primarily personal
C. Personal/rental
D. None of these
8-9
53. Charles and Sarah own a home in Palm Springs, CA. During the year, they rented the house
for 40 days for $5,000 and used it for personal use for 18 days. The house remained vacant
for the remainder of the year. The expenses for the house included $16,000 in mortgage
interest, $4,500 in property taxes, $1,000 in utilities, $1,200 in maintenance, and $9,800 in
depreciation. What is the deductible loss for the rental of their home (without considering the
passive loss limitation)? Use the Tax Court method for allocation of expenses.
A. $0
C. $17,414 net loss
D. $27,500 net loss
54. Jane and Don own a ski chalet in Lake Tahoe, NV and rented it for 12 days for $8,000. The
rest of the year, the chalet was used by them and their friends and family. What is the proper
tax treatment of the $8,000?
A. Should be reported on Schedule E

B. None of the rental income is included in gross income
C. The amount should be reported on Schedule C
D. The amount should be reported as other income on Form 1040
55. Mario owns a home in Park City, Utah, that he rented for $1,600 for three weeks during the
summer. He lived there for a total of 120 days and the rest of the year, the house was vacant.
The expenses for the home included $6,000 in mortgage interest, $900 in property taxes,
$1,300 in maintenance and utilities, and $3,500 in depreciation. How much net rental income
or loss from the Park City home would Mario report for the current year? Use the IRS method
for allocating expenses.
A. $0
C. $6,000 net loss
D. $9,100 net loss
8-10
56. In the current year, Marnie rented her vacation home for 75 days, used it for personal reasons
for 22 days, and left it vacant for the remainder of the year. Her income and expenses are as
follows:
What is Marnie's net income or loss from the activity? Use the Tax Court method.
(Round your answer to the nearest whole dollar)
A. $0
C. $11,123 net income
8-11
57. Lupe rented her personal residence for 13 days to summer vacationers for $3,800. She lived
in the home for the rest of the year. She has AGI of $95,000 excluding the rental income.
Related expenses for Lupe's personal residence for the year include these:
What is Lupe's AGI after taking into consideration the rental income and related expenses?
A. $95,000
B. $98,098
C. $98,800
D. $115,000
58. Jacqueline owns a condominium on an island in Washington which was rented out all year for
$30,000. She incurred the following expenses:
What amount of net income or loss does Jacqueline report from this rental property?
A. $0
B. $9,700 net loss
8-12
59. Hugh and Mary own a cabin in Big Bear that they rented for 45 days at $4,500. They used the
cabin for personal use for 30 days during the year. The allocated expenses related to the
cabin of $6,000, resulting in a net loss of $1,500 for this rental activity. What is the proper tax
treatment of these amounts by Hugh and Mary?
A. Report net income of $4,500

B. Report rental net loss of $1,500
C. None of the amounts should be reported
D. Report income and expenses on Schedule E but expenses cannot exceed income
60. Which of the following statements is not true about vacation home properties?
A. Property rented for 15 days or more and used for personal use for 14 days or less would be
categorized as primarily rental
B. A property rented for 15 days or more and used for personal use for more than 14 days
would be categorized as personal/rental
C. A property categorized as primarily personal is rented for 0 days
D. A primarily personal property does not need to report the income from the property
61. Darius and Chantal own a cabin in Lake Arrowhead, California. During the year, they rented it
for 45 days for $10,000 and used it for 12 days for personal use. The house remained vacant
for the remainder of the year. The expenses for the house included $9,000 in mortgage
interest, $2,000 in property taxes, $1,000 in utilities, $600 in maintenance, and $3,000 in
depreciation. What is their net income or loss from their cabin (without considering the
passive loss limitation)? Use the IRS method for allocation of expenses. (Round your answer
to the nearest whole dollar)
A. $0
B. $2,316 net loss
C. $5,600 net loss
8-13
62. Jeremy and Gladys own a cabin in Sun Valley, Idaho, which they rented for 30 days. They also
used the cabin with their family and friends for the ski season for 45 days. Their income and
expenses were as follows: rental income $4,000, mortgage interest $3,000, property taxes
$2,200, utilities $400, maintenance $400, and depreciation $4,800. How much depreciation
expense can they deduct on Schedule E for the cabin? Use the IRS method for allocation of
expenses.
A. $0
B. $1,600
C. $2,400
D. $4,800
63. Stephen and Joy own a duplex in Newport Beach, CA. They live in one unit and rent the other
to another couple. Their rental income for the year was $24,000. They incurred the following
expenses for the entire duplex:
What amount of net income from the duplex should Stephen and Joy report for the current
year?
A. $7,300
B. $9,400
C. $16,700
D. $24,000
8-14
64. Reggie and Bebe own an apartment building in Portland, Oregon, with 8 identical units. They
live in one and rent the remaining units. Their rental income for the year was $45,000. They
incurred the following expenses for the entire building:
What amount of net income should Reggie and Bebe report for the current year for this
rental? (Round your answer to the nearest whole dollar)
A. $7,650
B. $12,213
C. $38,350
D. $45,000
8-15
65. Nathan owns a tri-plex in Santa Maria, California. He lives in one and rents the other two
remaining units. All three units are identical. He incurred the following expenses for the entire
building:
How much in rental expenses can Nathan deduct against the rental income on a Schedule E
in the current year (without considering any passive loss limitations)? (Round your answers
to the nearest whole dollar)
A. $14,733
B. $20,000
C. $29,467
D. $44,200
66. Royalties can be earned from allowing others the right to use:
A. Books
B. Plays
C. Trademarks
D. All of these
67. When royalties are paid, at the end of the year the payer sends the recipient a Form _____?
A. Schedule C
B. Schedule K-1
C. 1099-MISC
D. 1099-INT
8-16
68. Samantha is a full-time author and recently published her 8th romance novel. She should
report the royalty income she receives from the publisher this year on what Schedule/Form?
A. Schedule C
B. Schedule K-1
C. 1099-MISC
D. 1099-INT
69. Royalties can be earned from allowing others the right to use or exploit:
A. Copyrights
B. Formulas
C. Coal mines
D. All of these
70. Which of the following statements is true with regard to the reporting of royalty income?
A. It must be reported on Schedule C only

B. It must be reported on Schedule E only
C. It can be reported on Schedule C but generally on Schedule E
D. Royalty income reported on Schedule E is subject to self-employment tax
71. Which of the following entity(ies) is(are) considered flow-through?
A. C corporation
B. Sole proprietorship
C. Publicly traded corporation
D. S corporation
8-17
72. From which of the following flow-through entities is the ordinary income (K-1) considered
self-employment income?
A. S corporations
B. Estates
C. Trusts
D. Partnerships
73. Alex, Ellen and Nicolas are equal partners in a local restaurant. The restaurant reports the
following items for the current year:
Each partner receives a Schedule K-1 with one-third of the preceding items reported to
him/her. How must each individual report these results on his/her Form 1040?
A. $100,000 income on Schedule E; $50,000 investment expense on Schedule A

B. $257,667 income on Schedule E; $50,000 investment expense on Schedule A
C. $300,000 income on Schedule E; $50,000 investment expense on Schedule A
D. $300,000 income on Schedule E; $150,000 investment expense on Schedule A
8-18
74. Ariel, Bob, Candice and Dmitri are equal partners in a local ski resort. The resort reports the
Each partner receives a Schedule K-1 with one-fourth of the preceding items reported to
A. $100,000 income on Schedule E; $1,000 short-term capital gain on Schedule D

B. $112,500 income on Schedule E; $1,000 short-term capital gain on Schedule D
C. $300,000 income on Schedule E; $26,750 short-term capital gain on Schedule D
D. $1,200,000 income on Schedule E; $107,000 short-term capital gain on Schedule D
75. Owen and Jessica own and operate an S corporation. Each is a 50% owner. The business
reports the following results:
How do Owen and Jessica report these items for tax purposes?
A. $68,500 income on Schedule E; $16,000 investment expense on Schedule D

8-19
76. Which of the following statements is incorrect concerning rental properties?
A. Generally, rental activities are reported on Schedule E.

B. All ordinary expenses related to the rental activity are deductible.
C. Capital improvements may be deducted as expense in the year the improvements are
made.
D. Travel expenses related to the rental activity are calculated using the standard mileage
rate.
77. On June 1st of the current year, Kayla and Ralph purchased a rental beach house for
$700,000. Of that amount, $400,000 was for the land value. How much depreciation deduction
can they take in the current year? (You may need to refer to the depreciation tables.)
A. $0.
B. $5,910.
C. $7,880.
D. $13,790.
78. On June 1st of the current year, Nancy and Dean purchased a rental beach house for
$1,200,000. Of that amount, $800,000 was for the land value. How much depreciation
deduction can Nancy and Dean take in the current year? (You may need to refer to the
depreciation tables.)
A. $7,880.
B. $14,545.
C. $15,760.
D. $23,640.
8-20
79. Jackson owns a condominium in Las Vegas, Nevada, and he rents it to Joanne for $1,500 per
month, payable on the 1st of each month. While he was out of town in August, the
condominium's air conditioning broke and Joann had it replaced for $1,350. How much rental
income does Jackson report for September if Joanne deducts the repair cost from her rent for
September?
A. $0.
B. $150.
C. $1,350.
D. $1,500.
80. Eddie and Camilla received $11,600 for the rental of their rental house in Irvine, California.
Eddie and Camilla do not use this property for personal use. The rent covers six months from
October 1 of the current year to March 31 of next year. The amount also includes a security
deposit of $2,000. How much should Eddie and Camilla report as rental income in the current
tax year?
A. $2,000.
B. $9,600.
C. $11,600.
D. $13,600.
8-21
81. Lori and Donald own a condominium in Colorado Springs, Colorado, that they rent out part of
the time and use during the summer. The rental property is classified as personal/rental
property and their personal use is determined to be 75% (based on the IRS method). They
had the following income and expenses for the year (before any allocation):
How much net loss should Lori and Donald report for their condominium on their tax return
this year?
A. $0.
B. $3,350 loss.
C. $7,400 loss.
D. $9,000 loss.
categorized as:
A. Primarily rental.
B. Primarily personal.
C. Personal/rental.
D. All of these are correct.
83. Julian and Nina own a home in Napa Valley, California, and rented it for 14 days for $10,000
to a large corporation. The rest of the year, they lived in the home. What is the proper tax
treatment of the $10,000 they received?
A. The amount should be reported on Schedule E.

B. The amount should be reported on Schedule C.
C. None of the rental income should be included in gross income.
D. The amount should be reported as other income.
8-22
84. Richard owns a cabin in Utah that he rented for $4,000 for 21 days. He lived there for a total
of 120 days. The expenses for the home included $8,000 in mortgage interest, $1,200 in
property taxes, $1,300 in maintenance and utilities, and $3,500 in depreciation. How much
net income or loss from the Utah home would Richard report for the current year (use the IRS
method)? (Round your answer to the nearest whole number)
A. $0.
B. $1,915 net income.
C. $4,000 net income.
D. $10,000 net loss.
85. Leslie and Devin own a beach cottage that they rented 30 days for $4,500. They used the
cottage for personal use for 45 days during the year. The allocated expenses related to the
cottage total $6,000, resulting in a net loss of $1,500 for this rental activity. What is the
proper tax treatment of these amounts by Leslie and Devin?
A. Report net income of $4,500 on Schedule E.

B. Report net loss of $1,500 on Schedule E.
C. None of the amounts have to be reported.
D. Report income and expenses on Schedule E but expenses cannot exceed income.
categorized as:
A. primarily rental
B. primarily personal
C. personal/rental
D. all of these are correct
8-23
87. Katie and Mike own a home in Newport Beach, California. During the year, they rented the
house for 80 days for $24,000 and used it for personal use for 30 days. The expenses for the
house included $20,000 in mortgage interest, $8,500 in property taxes, $6,000 in utilities,
$2,000 in maintenance, and $12,000 in depreciation. What is the deductible loss for the rental
of their home (without considering the passive loss limitation)? Use the IRS method for
allocation of expenses.
A. $0.
C. $17,414 net loss.
88. Lois and Benjamin own a chalet in New Mexico and rented it for 12 days for $6,000. The rest
of the year, the chalet was used by them and their friends and family. What is the proper tax
treatment of the $6,000 income?
A. none of the rental income needs to be reported as part of gross income.

B. the amount should be reported on Schedule E.
C. the amount should be reported on Schedule C.
D. the amount should be reported as other income.
89. Which of the following statements is true concerning vacation home properties?
A. A property rented for 15 days or more and used for personal use for no more than 14 days
is categorized as primarily rental.
B. A property rented for 15 days or more and used for personal use for more than 14 days is
categorized as primarily personal.
C. A property categorized as primarily personal is one rented for zero days.
D. Report all income and expenses for a personal/rental property and the net amount
reported may be either net income or net loss.
8-24
90. Which of the following expense items is(are) deductible as rental expense?
A. Property taxes.
B. Depreciation.
C. Insurance.
D. All are deductible rental expenses.
91. Elizabeth rented her personal residence for 12 days to summer vacationers for $4,800. Rest
of the year, she and her family used the home as their personal residence. She has AGI of
$105,000, excluding the rental income. Related expenses for Elizabeth's personal residence
for the year include the following:
What is Elizabeth's AGI after taking into consideration the rental income and related
expenses for her home?
A. $4,800.
B. $100,200.
C. $105,000.
D. $109,800.
8-25
92. Robert and Melissa own a home in Big Bear Lake, California. During the year, they rented it
for 55 days for $11,000 and used it for 12 days for personal use. The expenses for the house
included $12,000 in mortgage interest, $2,000 in property taxes, $1,000 in utilities, $600 in
maintenance, and $4,000 in depreciation. What is their income or loss from their cabin
(without considering the passive loss limitation)? Use the IRS method for allocation of
expenses. (Round your answer to the nearest whole number)
A. $0.
B. $2,947 net loss.
C. $5,090 net loss.
D. $11,000 net income.
93. Colin and Megan own a cabin in the Mammoth Mountains, California. During the year, they
rented it for 45 days for $10,000 and used it 12 days for personal use. The expenses for the
cabin included $7,000 in mortgage interest, $3,000 in property taxes, $1,200 in utilities, $400
in maintenance, and $3,000 in depreciation. What is their net income or loss from the cabin
expenses. (Round your answer to the nearest whole number)
A. $0.
B. $1,526 net loss.
C. $7,632 net loss.
A. patents.
B. plays.
C. songs.
D. all of these.
8-26
95. When royalty income is received, the recipient (tax payer) generally reports the income on
which form?
A. Schedule D.
B. Schedule K-1.
C. 1099-MISC.
D. Schedule E.
96. Darlene is a full-time author and recently published her third romance novel. The royalty
income she receives from the publisher this year should be reported on what schedule?
A. Schedule C.
B. Schedule K-1.
C. 1099-MISC.
D. 1099-INT.
97. Paul is a 45-year-old stockbroker. When he was in his 20s, he was a member of a band called
the Zombies and wrote several hit songs. Paul should report the royalty income he receives in
the current year from his songs on what schedule?
A. Schedule E.
B. Schedule D.
C. Schedule A.
D. Schedule C.
98. Royalties can NOT be earned from which of the following?
A. oil wells.
B. patents.
C. coal mines.
D. stocks.
8-27
A. Building.
B. Equipment.
C. Furniture.
D. Copyrighted material.
100.Jeremiah is a full-time professor of psychology at the University of Washington and an author

of a psychology textbook. The royalty income he receives from the publisher should be
reported on:
A. Schedule C.
B. Schedule K-1.
C. Form 1099-MISC.
D. Schedule E.
101.Which of the following is not considered a flow-through entity?
A. Limited liability company.

B. Sole proprietorship.
C. Partnership.
D. S corporation.
8-28
102.Roger, Ellen, Drew and Cindy are equal partners in a local pub. The pub reports the following
items for the current year:
A. $192,500 on Schedule E; $40,000 on Schedule A.

B. $257,667 on Schedule E; $40,000 on Schedule A.
C. $385,000 on Schedule E; $40,000 on Schedule A.
D. $770,000 on Schedule E; $160,000 on Schedule A.
103.Which of the following entity(ies) is(are) considered flow-through entity(ies)?
A. C corporation.
B. sole proprietorship.
C. non-profit corporations.
D. estates.
8-29
104.Earl and Sandra own and operate a restaurant as an S corporation. Each is a 50% owner. The
business reports the following results for the year:
How do Earl and Sandra report these items for tax purposes on each of their individual
returns?
A. $41,000 income on Schedule E; $16,000 investment expense on Schedule A.

B. $41,000 income on Schedule E; $32000 investment expense on Schedule A.
C. $82,000 income on Schedule E; $32,000 investment expense on Schedule A.
D. $480,000 income on Schedule E; $16,000 investment expense on Schedule A.
Short Answer Questions
105.When reporting the income and expenses of a rental property, what determines the use of
the Schedule C versus the Schedule E?
8-30
106.What must the owner of rental property do with respect to the rental activity to have it be
considered:
1) material participation?
2) A trade or business?
107.What is meant by ordinary rental expenses and what criteria must be met to be deductible?
Provide some examples of deductible rental expenses. For this question, assume no personal
use of the rental property.
108.What are the criteria that determine an amount as capital improvement rather than repair
and maintenance expense? What is the proper tax treatment of a capital improvement for
rental properties?
8-31
109.Explain the three categories that a rental activity may fall under if used for both personal and
rental purposes. How are the categories determined?
110.What criteria determine a personal and rental use property as personal/rental? How is net
income or loss treated for tax purposes for a personal/rental property?
111.What are the rules concerning the deductibility of travel as it relates to rental properties?
How are travel expenses to and from rental properties calculated?
8-32
112.Kirk and Amy live in Augusta, Georgia. Every year during the Masters Golf Tournament, they
rent their primary personal residence for 10 days for $10,000 to a large corporation that uses
it to entertain clients. The rest of year, they reside full-time in their home. How should Kirk
and Amy treat the rental income? Explain.
113.Explain the difference between the two methods available; the Tax Court's method and the
IRS method, to allocate expenses between personal and rental use of property.
114.Explain what is considered personal use of a rental property.
8-33
115.Meredith has a vacation rental house in the Sierra Mountains. During the year, she and her
immediate family used the house for 12 days for a personal vacation. Meredith spent two
more weekends (4 days in total) repairing the deck. The house was rented for 120 days. How
should the cabin be categorized this year for tax purposes? Explain your answer.
116.Assume the same facts as #71, but Meredith rented her house (at fair value) to her brother
and his family for 9 days (in addition to her personal use) and total days rented was 180
days. How is the cabin categorized now? Explain your answer.
117.Define royalty income. What criteria determine which form is used and where the royalties
are reported?
8-34
118.What are the different types of income that may be reported on Schedule E?
119.What is meant by a passive activity? Why is a rental activity classified as a passive activity?
Can a rental activity be classified as active? Explain.
8-35
Chapter 08 Rental Property, Royalties, and Income from Flow-
Through Entities Answer Key
True / False Questions
1. Rental income is generally reported on Schedule C.
FALSE
Taxpayers report these items on Schedule E of Form 1040.
Accessibility: Keyboard Navigation

Difficulty: 1 Easy
EA: Yes
Learning Objective: 08-01 Explain how income and expenses are recognized and reported for rental property.
Topic: Rental Property Income and Expenses
2. Capital improvements on rental properties may be deducted in the current year.
FALSE
Capital improvements must be capitalized and depreciated over the appropriate asset life.

Difficulty: 1 Easy
EA: Yes
3. A security deposit for a rental property is not reported as income.
TRUE

Difficulty: 1 Easy
EA: Yes
8-36
4. Residential rental properties are depreciated using the straight-line method over 27½
years.
TRUE

Difficulty: 1 Easy
EA: Yes
5. If a tenant pays an expense normally paid by the taxpayer (landlord) in lieu of rent (or the
full rent), that expense is not considered part of rental income to the taxpayer.
FALSE
If a tenant pays an expense normally paid by the taxpayer in lieu of rent, that expense is
included as part of rental income to the taxpayer.

Difficulty: 1 Easy
EA: Yes
6. Rental properties that are also used as vacation homes fall under one of three categories:
(1) primarily rental,

(2) primarily personal, and
(3) personal/rental.
TRUE

Difficulty: 1 Easy
EA: Yes
Learning Objective: 08-02 Understand how to report personal use of a rental property (vacation home).
Topic: Personal Use of Rental Property
8-37
7. If a family member of a taxpayer uses the rental property and pays full rental value, then
those days rented are considered rental days.
FALSE
If any member of the taxpayer's family uses the rental property, the days are considered
personal use days even if the family member pays the full rental value.

Difficulty: 1 Easy
EA: Yes
8. In the case of personal/rental property, a taxpayer can deduct expenses only to the extent
that there is rental income.
TRUE

Difficulty: 1 Easy
EA: Yes
9. Jennifer's beach house rented for 175 days and used by her and her family for 15 days, is
FALSE
Jennifer's house is considered primarily rental use since the personal days were less than
10% of the total rental days.

Difficulty: 1 Easy
EA: Yes
8-38
10. Jonathan and Sandy rented their cabin for 123 days and used the cabin for personal use
for 55 days. The cabin is considered personal/rental property.
TRUE

Difficulty: 1 Easy
EA: Yes
11. There are two methods available to taxpayers to allocate expenses between personal and
rental use of properties.
TRUE
The two methods are the IRS method and the Tax Court method.

Difficulty: 1 Easy
EA: Yes
12. A property rented for less than 15 days and used for personal use the remainder of the
year, should have the rental income reported on Schedule E.
FALSE
This property is considered primarily personal and therefore, none of the rental income is
included in gross income.

Difficulty: 1 Easy
EA: Yes
8-39
13. A personal/rental property (that is not a trade or business) may report its income and
expenses on Schedule A.
FALSE
Rental income and expenses must be reported on a Schedule E.

Difficulty: 1 Easy
EA: Yes
14. A royalty is a payment for the right to use intangible property.
TRUE

Difficulty: 1 Easy
EA: Yes
Learning Objective: 08-03 Know how to report royalty income on Schedule E.
Topic: Royalty Income
15. When royalties are paid, the amount paid is reported to the recipient by the payer at the
end of the year on a Schedule K-1.
FALSE
The payment is reported on Form 1099-MISC.

Difficulty: 1 Easy
EA: Yes
8-40
16. Generally, a taxpayer uses Schedule C to report royalty income.
FALSE
Royalty income is generally reported on a Schedule E.

Difficulty: 1 Easy
EA: Yes
17. Royalties resulting from a non-trade or non-business activity should be reported on a

Schedule E.
TRUE

Difficulty: 1 Easy
EA: Yes
18. Entities such as partnerships, LLC's, and S Corporations are known as flow-through
entities.
TRUE

Difficulty: 1 Easy
EA: No
Learning Objective: 08-04 Discuss the different types of flow-through entities reported on Schedule E; such as
partnerships; S corporations; LLCs; trusts; and estates.
Topic: Flow-Through Entities
8-41
19. Flow-through entities are named as such because they are taxed continuously.
FALSE
The entities are known as flow-through entities because they are not taxed directly.

Difficulty: 1 Easy
EA: No
20. Flow-through entities supply each owner at the end of the year with a Schedule E,
indicating his/her income and expenses to report.
FALSE
Each owner is supplied a K-1 indicating the owner's share of income, expenses, or losses.

Difficulty: 1 Easy
EA: No
21. Flow-through entities file "informational returns."
TRUE

Difficulty: 1 Easy
EA: No
8-42
22. The income from a partnership to its partner is considered self-employment income.
TRUE

Difficulty: 1 Easy
EA: No
23. Rental activities by definition are passive activities.
TRUE

Difficulty: 1 Easy
EA: No
24. If a taxpayer materially participates in his/her rental activity as a real estate professional,
the activity is considered a trade or business and not a passive activity.
TRUE

Difficulty: 1 Easy
EA: No
25. A taxpayer with a rental activity may be allowed up to $25,000 of rental losses against
other (active or portfolio) income.
TRUE

Difficulty: 1 Easy
EA: No
8-43
26. Rental income may be reported on a Schedule A or a Schedule C.
FALSE

Difficulty: 1 Easy
EA: Yes
27. All rental properties are depreciated using the straight-line method over 39 years.
FALSE

Difficulty: 1 Easy
EA: Yes
28. If a tenant provides service for the rental property in lieu of rental payment, the fair market
value of the service is considered rental income and must be reported as income.
TRUE

Difficulty: 1 Easy
EA: Yes
29. All advance rental payments received, including security deposits for a rental property,
must be reported as income when received.
FALSE

Difficulty: 1 Easy
EA: Yes
8-44
30. Alexis' cabin in the mountains that was rented for 125 days and used by her for 12 days is
FALSE

Difficulty: 1 Easy
EA: No
Topic: Vacation Home
31. Joey and Susan rented their house for 2 weeks and used it for personal use for the
remainder of the year. The house is considered personal/rental property.
FALSE

Difficulty: 1 Easy
EA: No
32. Rental properties that are also used as vacation homes fall under one of two categories:
(1) primarily rental; or

(2) primarily personal.
FALSE

Difficulty: 1 Easy
EA: No
33. In the case of a primarily personal property, a taxpayer may report a net loss as long as
the correct allocation method was used.
FALSE

Difficulty: 1 Easy
EA: No
8-45
34. The two methods that may be used to allocate expenses between personal and rental use
of properties are the IRS method and the Tax Court method.
TRUE

Difficulty: 1 Easy
EA: No
35. A primarily rental property may report its income and expenses on a Schedule E.
TRUE

Difficulty: 1 Easy
EA: No
36. A taxpayer may use a Schedule C or a Schedule E to report royalty income.
TRUE

Difficulty: 1 Easy
EA: No
37. Royalty income is income received from the use of books, stories, plays, copyrights,
trademarks, etc. owned by the taxpayer.
TRUE

Difficulty: 1 Easy
EA: No
8-46
38. When royalties are paid, the amount paid is reported to the recipient by the payer on a
Form 1099-MISC.
TRUE

Difficulty: 1 Easy
EA: No
39. Flow-through entities include, but are not limited to, LLCs, S Corporations, trusts and
estates.
TRUE

Difficulty: 1 Easy
EA: No
40. In general, losses from passive activities may be deducted only to the extent that there is
passive income.
TRUE

Difficulty: 1 Easy
EA: No
Multiple Choice Questions
8-47
41. On June 1 of the current year, Jack and Angie purchased a rental beach house for
$900,000 and rented it right away. Of that amount, $600,000 was for the land value. How
much depreciation deduction can Jack and Angie take in the current year? (You may need
to refer to the depreciation tables.)
A. $5,910
B. $10,909
C. $11,820
D. $17,730
$300,000 × .0197 = $5,910.

Difficulty: 2 Medium
EA: Yes
42. Jamison owns a rental cabin in Mammoth, and travels there for maintenance three times a
year, between January and June. The round trip to Mammoth from San Diego where
Jamison lives, is approximately 405 miles. How much travel costs can Jamison deduct per
year related to his rental cabin? (Round your answer to the nearest whole number)
A. $248
B. $680
C. $743
D. $1,352
405 miles × 3 × .56 = $680.

EA: Yes
8-48
43. Brad and Kate received $9,500 for rent from Mike and Janet, who are renting their home in
Santa Ana, California. Brad and Kate did not use this property for personal use. The rent
covers eight months from August 1 of the current year to March 31 of the following year.
The amount also includes a security deposit of $1,500. How much should Brad and Kate
report as rental income in the current tax year?
A. $1,500
B. $5,000
C. $8,000
D. $9,500
$9,500 - $1,500 = $8,000.

EA: Yes
44. Georgia owns a home in Colorado that she rents for $1,200 per month (she does not use
the home personally). While she was in Europe in November, the roof in her rental home
leaked and her tenant repaired it for $900. For the following month's rent (December), her
tenant paid her $300 for rent ($1,200 - $900). What amounts should Georgia include for
rental income and repair expense, respectively, for December?
A. $300; $900
B. $900; $300
C. $1,200; $300
D. $1,200; $900
Expenses paid by the tenant in lieu of rent payments are components of rental income.

EA: Yes
8-49
45. If a taxpayer materially participates in a real estate activity as a real estate professional,
the income and expenses of the activity should be reported on:
A. Schedule A
B. Schedule C
C. Schedule E
D. None of these

Difficulty: 1 Easy
EA: Yes
46. Naomi and Matt received the following amounts from a tenant who is renting their
condominium during the current year (rent is $1,500 per month):
Rent for two months would normally have been $3,000, but the tenant paid $800 for a
plumbing repair. The repair would normally have been paid by Naomi and Matt but the
problem occurred while they were out of town. How much should Naomi and Matt report
as rental income for the current tax year?
A. $2,200
B. $2,400
C. $3,000
D. $4,600
$2,200 rent + $800 repair
EA: Yes
8-50
47. Which of the following is not considered an ordinary expense for a rental activity?
A. Advertising
B. Insurance
C. Property taxes
D. All of these are deductible as ordinary expense

Difficulty: 1 Easy
EA: Yes
48. Which of the following is not considered a capital improvement for a rental activity?
A. Addition of a bathroom
B. Replacement of the roof
C. Repair of a leaky water pipe
D. New landscaping

EA: Yes
49. What is the proper tax treatment of capital improvements for a residential or commercial
rental property?
A. IRC section 179 may be claimed.

B. Can be deducted as ordinary expenses.
C. Must be depreciated using the double-declining balance method.
D. Must be depreciated using straight-line over 27½ or 39 years.

EA: Yes
8-51
50. Which of the following expense items is(are) deductible as rental expense for a rental
property?
A. Travel related to the property

B. Management fees
C. Repairs and maintenance
D. All are deductible expenses

EA: Yes
51. May owns a four-plex in Garden Grove, CA. She rents out 3 units and lives in the fourth.
Her income and expenses for the entire four-plex are as follows: mortgage interest $8,200,
property taxes $9,000, insurance $3,000, utilities $2,000, repairs and maintenance $1,000,
depreciation on the entire complex of $5,000, and rental income of $25,000. What amount
of net rental income or loss should May report on her current tax return?
A. $3,200 net loss

C. $21,150 net loss
$25,000 - ¾($8,200 + $9,000 + $3,000 + $2,000 + $1,000 + $5,000) = $3,850 net income.

Difficulty: 3 Hard
EA: Yes
8-52
52. A property that has been rented for 120 days and used for personal use for 13 days should
be categorized as:
A. Primarily rental
B. Primarily personal
C. Personal/rental
D. None of these

EA: Yes
53. Charles and Sarah own a home in Palm Springs, CA. During the year, they rented the
house for 40 days for $5,000 and used it for personal use for 18 days. The house remained
vacant for the remainder of the year. The expenses for the house included $16,000 in
mortgage interest, $4,500 in property taxes, $1,000 in utilities, $1,200 in maintenance, and
$9,800 in depreciation. What is the deductible loss for the rental of their home (without
considering the passive loss limitation)? Use the Tax Court method for allocation of
expenses.
A. $0
C. $17,414 net loss
D. $27,500 net loss
A personal/rental property may not incur a net loss.

EA: Yes
8-53
54. Jane and Don own a ski chalet in Lake Tahoe, NV and rented it for 12 days for $8,000. The
rest of the year, the chalet was used by them and their friends and family. What is the
proper tax treatment of the $8,000?
A. Should be reported on Schedule E

B. None of the rental income is included in gross income
C. The amount should be reported on Schedule C
D. The amount should be reported as other income on Form 1040
This property is considered primarily personal and therefore, none of the rental income is
included in gross income.

EA: Yes
55. Mario owns a home in Park City, Utah, that he rented for $1,600 for three weeks during
the summer. He lived there for a total of 120 days and the rest of the year, the house was
vacant. The expenses for the home included $6,000 in mortgage interest, $900 in property
taxes, $1,300 in maintenance and utilities, and $3,500 in depreciation. How much net
rental income or loss from the Park City home would Mario report for the current year?
Use the IRS method for allocating expenses.
A. $0
C. $6,000 net loss
D. $9,100 net loss
A personal/rental property may not incur a net loss.

EA: Yes
8-54
56. In the current year, Marnie rented her vacation home for 75 days, used it for personal
reasons for 22 days, and left it vacant for the remainder of the year. Her income and
expenses are as follows:
What is Marnie's net income or loss from the activity? Use the Tax Court method.
(Round your answer to the nearest whole dollar)
A. $0
$18,000 - [75/365($2,500 + $3,500)] - [75/97($1,100 + $1,000 + $5,200)] = $11,123.
Difficulty: 3 Hard
EA: Yes
8-55
57. Lupe rented her personal residence for 13 days to summer vacationers for $3,800. She
lived in the home for the rest of the year. She has AGI of $95,000 excluding the rental
income. Related expenses for Lupe's personal residence for the year include these:
What is Lupe's AGI after taking into consideration the rental income and related
expenses?
A. $95,000
B. $98,098
C. $98,800
D. $115,000
Income from primarily personal properties is not included in AGI and expenses may not be
deducted (except for those that may be itemized).
EA: Yes
8-56
58. Jacqueline owns a condominium on an island in Washington which was rented out all year
for $30,000. She incurred the following expenses:
What amount of net income or loss does Jacqueline report from this rental property?
A. $0
B. $9,700 net loss
$30,000 - ($1,300 + $800 + $1,500 + $1,800 + $300 + $4,000) = $20,300.
Difficulty: 3 Hard
EA: Yes
59. Hugh and Mary own a cabin in Big Bear that they rented for 45 days at $4,500. They used
the cabin for personal use for 30 days during the year. The allocated expenses related to
the cabin of $6,000, resulting in a net loss of $1,500 for this rental activity. What is the
proper tax treatment of these amounts by Hugh and Mary?
A. Report net income of $4,500

B. Report rental net loss of $1,500
C. None of the amounts should be reported
D. Report income and expenses on Schedule E but expenses cannot exceed income

EA: Yes
8-57
60. Which of the following statements is not true about vacation home properties?
A. Property rented for 15 days or more and used for personal use for 14 days or less
would be categorized as primarily rental
would be categorized as personal/rental
C. A property categorized as primarily personal is rented for 0 days
D. A primarily personal property does not need to report the income from the property

EA: Yes
61. Darius and Chantal own a cabin in Lake Arrowhead, California. During the year, they
rented it for 45 days for $10,000 and used it for 12 days for personal use. The house
remained vacant for the remainder of the year. The expenses for the house included
$9,000 in mortgage interest, $2,000 in property taxes, $1,000 in utilities, $600 in
maintenance, and $3,000 in depreciation. What is their net income or loss from their cabin
expenses. (Round your answer to the nearest whole dollar)
A. $0
B. $2,316 net loss
C. $5,600 net loss
$10,000 - [45/57($9,000 + $2,000 + $1,000 + $600 + $3,000)] = ($2,316).

Difficulty: 3 Hard
EA: Yes
8-58
62. Jeremy and Gladys own a cabin in Sun Valley, Idaho, which they rented for 30 days. They
also used the cabin with their family and friends for the ski season for 45 days. Their
income and expenses were as follows: rental income $4,000, mortgage interest $3,000,
property taxes $2,200, utilities $400, maintenance $400, and depreciation $4,800. How
much depreciation expense can they deduct on Schedule E for the cabin? Use the IRS
method for allocation of expenses.
A. $0
B. $1,600
C. $2,400
D. $4,800
$4,000 - 30/75($3,000 + $2,200 + $400 + $400) = $1,600 left for depreciation; only $1,600
can be deducted since no net loss is allowed.

Difficulty: 3 Hard
EA: Yes
8-59
63. Stephen and Joy own a duplex in Newport Beach, CA. They live in one unit and rent the
other to another couple. Their rental income for the year was $24,000. They incurred the
following expenses for the entire duplex:
What amount of net income from the duplex should Stephen and Joy report for the current
year?
A. $7,300
B. $9,400
C. $16,700
D. $24,000
$24,000 - ½($8,000 + $800 + $1,800 + $4,000) = $16,700.
Difficulty: 3 Hard
EA: Yes
8-60
64. Reggie and Bebe own an apartment building in Portland, Oregon, with 8 identical units.
They live in one and rent the remaining units. Their rental income for the year was
$45,000. They incurred the following expenses for the entire building:
What amount of net income should Reggie and Bebe report for the current year for this
rental? (Round your answer to the nearest whole dollar)
A. $7,650
B. $12,213
C. $38,350
D. $45,000
$45,000 - $850 - [7/8($9,000 + $7,500 + $12,000 + $8,000)] = $12,213.
Difficulty: 3 Hard
EA: Yes
8-61
65. Nathan owns a tri-plex in Santa Maria, California. He lives in one and rents the other two
remaining units. All three units are identical. He incurred the following expenses for the
entire building:
How much in rental expenses can Nathan deduct against the rental income on a Schedule
E in the current year (without considering any passive loss limitations)? (Round your
answers to the nearest whole dollar)
A. $14,733
B. $20,000
C. $29,467
D. $44,200
2/3($20,000 + $6,200 + $9,000 + $5,000 + $4,000) = $29,467.
Difficulty: 3 Hard
EA: Yes
A. Books
B. Plays
C. Trademarks
D. All of these

EA: Yes
8-62
67. When royalties are paid, at the end of the year the payer sends the recipient a Form
_____?
A. Schedule C
B. Schedule K-1
C. 1099-MISC
D. 1099-INT

EA: Yes
68. Samantha is a full-time author and recently published her 8th romance novel. She should
report the royalty income she receives from the publisher this year on what
Schedule/Form?
A. Schedule C
B. Schedule K-1
C. 1099-MISC
D. 1099-INT

EA: Yes
8-63
69. Royalties can be earned from allowing others the right to use or exploit:
A. Copyrights
B. Formulas
C. Coal mines
D. All of these

EA: Yes
70. Which of the following statements is true with regard to the reporting of royalty income?
A. It must be reported on Schedule C only

B. It must be reported on Schedule E only
C. It can be reported on Schedule C but generally on Schedule E
D. Royalty income reported on Schedule E is subject to self-employment tax

EA: Yes
71. Which of the following entity(ies) is(are) considered flow-through?
A. C corporation
B. Sole proprietorship
C. Publicly traded corporation
D. S corporation

EA: No
8-64
72. From which of the following flow-through entities is the ordinary income (K-1) considered
self-employment income?
A. S corporations
B. Estates
C. Trusts
D. Partnerships

EA: No
73. Alex, Ellen and Nicolas are equal partners in a local restaurant. The restaurant reports the
Each partner receives a Schedule K-1 with one-third of the preceding items reported to
A. $100,000 income on Schedule E; $50,000 investment expense on Schedule A

EA: No
8-65
74. Ariel, Bob, Candice and Dmitri are equal partners in a local ski resort. The resort reports
the following items for the current year:
A. $100,000 income on Schedule E; $1,000 short-term capital gain on Schedule D

B. $112,500 income on Schedule E; $1,000 short-term capital gain on Schedule D
C. $300,000 income on Schedule E; $26,750 short-term capital gain on Schedule D
D. $1,200,000 income on Schedule E; $107,000 short-term capital gain on Schedule D
EA: No
75. Owen and Jessica own and operate an S corporation. Each is a 50% owner. The business
reports the following results:
How do Owen and Jessica report these items for tax purposes?
A. $68,500 income on Schedule E; $16,000 investment expense on Schedule D

8-66
EA: No
76. Which of the following statements is incorrect concerning rental properties?
A. Generally, rental activities are reported on Schedule E.

B. All ordinary expenses related to the rental activity are deductible.
C. Capital improvements may be deducted as expense in the year the improvements are
made.
D. Travel expenses related to the rental activity are calculated using the standard mileage
rate.

Difficulty: 1 Easy
EA: Yes
77. On June 1st of the current year, Kayla and Ralph purchased a rental beach house for
$700,000. Of that amount, $400,000 was for the land value. How much depreciation
deduction can they take in the current year? (You may need to refer to the depreciation
tables.)
A. $0.
B. $5,910.
C. $7,880.
D. $13,790.
$300,000 × 1.970% = $5,910.

EA: Yes
8-67
78. On June 1st of the current year, Nancy and Dean purchased a rental beach house for
$1,200,000. Of that amount, $800,000 was for the land value. How much depreciation
deduction can Nancy and Dean take in the current year? (You may need to refer to the
depreciation tables.)
A. $7,880.
B. $14,545.
C. $15,760.
D. $23,640.
$400,000 × 1.970% = $7,880.

EA: Yes
79. Jackson owns a condominium in Las Vegas, Nevada, and he rents it to Joanne for $1,500
per month, payable on the 1st of each month. While he was out of town in August, the
condominium's air conditioning broke and Joann had it replaced for $1,350. How much
rental income does Jackson report for September if Joanne deducts the repair cost from
her rent for September?
A. $0.
B. $150.
C. $1,350.
D. $1,500.
Report the gross amount of the rent.

EA: Yes
8-68
80. Eddie and Camilla received $11,600 for the rental of their rental house in Irvine, California.
Eddie and Camilla do not use this property for personal use. The rent covers six months
from October 1 of the current year to March 31 of next year. The amount also includes a
security deposit of $2,000. How much should Eddie and Camilla report as rental income in
the current tax year?
A. $2,000.
B. $9,600.
C. $11,600.
D. $13,600.
$11,600 - $2,000 = $9,600.

EA: Yes
8-69
81. Lori and Donald own a condominium in Colorado Springs, Colorado, that they rent out part
of the time and use during the summer. The rental property is classified as personal/rental
property and their personal use is determined to be 75% (based on the IRS method). They
had the following income and expenses for the year (before any allocation):
How much net loss should Lori and Donald report for their condominium on their tax
return this year?
A. $0.
B. $3,350 loss.
C. $7,400 loss.
D. $9,000 loss.
No net loss is allowed for personal/rental properties.
EA: No
be categorized as:
A. Primarily rental.
B. Primarily personal.
C. Personal/rental.
D. All of these are correct.

Difficulty: 1 Easy
EA: No
8-70
83. Julian and Nina own a home in Napa Valley, California, and rented it for 14 days for
$10,000 to a large corporation. The rest of the year, they lived in the home. What is the
proper tax treatment of the $10,000 they received?
A. The amount should be reported on Schedule E.

B. The amount should be reported on Schedule C.
C. None of the rental income should be included in gross income.
D. The amount should be reported as other income.
If primarily personal, the rental income does not need to be reported.

EA: No
84. Richard owns a cabin in Utah that he rented for $4,000 for 21 days. He lived there for a
total of 120 days. The expenses for the home included $8,000 in mortgage interest, $1,200
in property taxes, $1,300 in maintenance and utilities, and $3,500 in depreciation. How
much net income or loss from the Utah home would Richard report for the current year
(use the IRS method)? (Round your answer to the nearest whole number)
A. $0.
C. $4,000 net income.
$4,000 - 21/141($8,000 + $1,200 + $1,300 + $3,500) = $1,915 net income.

Difficulty: 3 Hard
EA: No
8-71
85. Leslie and Devin own a beach cottage that they rented 30 days for $4,500. They used the
cottage for personal use for 45 days during the year. The allocated expenses related to the
cottage total $6,000, resulting in a net loss of $1,500 for this rental activity. What is the
proper tax treatment of these amounts by Leslie and Devin?
A. Report net income of $4,500 on Schedule E.

B. Report net loss of $1,500 on Schedule E.
C. None of the amounts have to be reported.
D. Report income and expenses on Schedule E but expenses cannot exceed income.
Personal/rental property. Expenses are deducted only to the extent there is rental income.

EA: No
be categorized as:
A. primarily rental
B. primarily personal
C. personal/rental
D. all of these are correct

EA: No
8-72
87. Katie and Mike own a home in Newport Beach, California. During the year, they rented the
house for 80 days for $24,000 and used it for personal use for 30 days. The expenses for
the house included $20,000 in mortgage interest, $8,500 in property taxes, $6,000 in
utilities, $2,000 in maintenance, and $12,000 in depreciation. What is the deductible loss
for the rental of their home (without considering the passive loss limitation)? Use the IRS
method for allocation of expenses.
A. $0.
C. $17,414 net loss.
This is a personal/rental property and therefore, no net loss is allowed.

EA: No
88. Lois and Benjamin own a chalet in New Mexico and rented it for 12 days for $6,000. The
rest of the year, the chalet was used by them and their friends and family. What is the
proper tax treatment of the $6,000 income?
A. none of the rental income needs to be reported as part of gross income.

B. the amount should be reported on Schedule E.
C. the amount should be reported on Schedule C.
D. the amount should be reported as other income.
This is a primarily rental property and therefore, no income or expense need to be

reported.

EA: No
8-73
89. Which of the following statements is true concerning vacation home properties?
A. A property rented for 15 days or more and used for personal use for no more than 14
days is categorized as primarily rental.
is categorized as primarily personal.
C. A property categorized as primarily personal is one rented for zero days.
D. Report all income and expenses for a personal/rental property and the net amount
reported may be either net income or net loss.

EA: No
90. Which of the following expense items is(are) deductible as rental expense?
A. Property taxes.
B. Depreciation.
C. Insurance.
D. All are deductible rental expenses.

EA: No
8-74
91. Elizabeth rented her personal residence for 12 days to summer vacationers for $4,800.
Rest of the year, she and her family used the home as their personal residence. She has
AGI of $105,000, excluding the rental income. Related expenses for Elizabeth's personal
residence for the year include the following:
What is Elizabeth's AGI after taking into consideration the rental income and related
expenses for her home?
A. $4,800.
B. $100,200.
C. $105,000.
D. $109,800.
This is a primarily rental property and therefore, no income or expense need to be

reported. Elizabeth's AGI will remain the same at $105,000.
EA: No
8-75
92. Robert and Melissa own a home in Big Bear Lake, California. During the year, they rented
it for 55 days for $11,000 and used it for 12 days for personal use. The expenses for the
house included $12,000 in mortgage interest, $2,000 in property taxes, $1,000 in utilities,
$600 in maintenance, and $4,000 in depreciation. What is their income or loss from their
cabin (without considering the passive loss limitation)? Use the IRS method for allocation
of expenses. (Round your answer to the nearest whole number)
A. $0.
B. $2,947 net loss.
C. $5,090 net loss.
$11,000 - 55/67($12,000 + $2,000 + $1,000 + $600 + $4,000) = $5,090 net loss.

Difficulty: 3 Hard
EA: No
93. Colin and Megan own a cabin in the Mammoth Mountains, California. During the year,
they rented it for 45 days for $10,000 and used it 12 days for personal use. The expenses
for the cabin included $7,000 in mortgage interest, $3,000 in property taxes, $1,200 in
utilities, $400 in maintenance, and $3,000 in depreciation. What is their net income or loss
from the cabin (without considering the passive loss limitation)? Use the IRS method for
allocation of expenses. (Round your answer to the nearest whole number)
A. $0.
B. $1,526 net loss.
C. $7,632 net loss.
$10,000 - 45/57 ($7,000 + $3,000 + $1,200 + $400 + $3,000) = $1,526 net loss.

Difficulty: 3 Hard
EA: No
8-76
A. patents.
B. plays.
C. songs.
D. all of these.

Difficulty: 1 Easy
EA: No
95. When royalty income is received, the recipient (tax payer) generally reports the income on
which form?
A. Schedule D.
B. Schedule K-1.
C. 1099-MISC.
D. Schedule E.

Difficulty: 1 Easy
EA: No
8-77
96. Darlene is a full-time author and recently published her third romance novel. The royalty
income she receives from the publisher this year should be reported on what schedule?
A. Schedule C.
B. Schedule K-1.
C. 1099-MISC.
D. 1099-INT.

Difficulty: 1 Easy
EA: No
97. Paul is a 45-year-old stockbroker. When he was in his 20s, he was a member of a band
called the Zombies and wrote several hit songs. Paul should report the royalty income he
receives in the current year from his songs on what schedule?
A. Schedule E.
B. Schedule D.
C. Schedule A.
D. Schedule C.

Difficulty: 1 Easy
EA: No
98. Royalties can NOT be earned from which of the following?
A. oil wells.
B. patents.
C. coal mines.
D. stocks.

Difficulty: 1 Easy
8-78
EA: No
A. Building.
B. Equipment.
C. Furniture.
D. Copyrighted material.

Difficulty: 1 Easy
EA: No
100. Jeremiah is a full-time professor of psychology at the University of Washington and an

author of a psychology textbook. The royalty income he receives from the publisher should
be reported on:
A. Schedule C.
B. Schedule K-1.
C. Form 1099-MISC.
D. Schedule E.

Difficulty: 1 Easy
EA: No
8-79
101. Which of the following is not considered a flow-through entity?
A. Limited liability company.

B. Sole proprietorship.
C. Partnership.
D. S corporation.

Difficulty: 1 Easy
EA: No
102. Roger, Ellen, Drew and Cindy are equal partners in a local pub. The pub reports the
A. $192,500 on Schedule E; $40,000 on Schedule A.

B. $257,667 on Schedule E; $40,000 on Schedule A.
C. $385,000 on Schedule E; $40,000 on Schedule A.
D. $770,000 on Schedule E; $160,000 on Schedule A.
($1,770,000 - $1,000,000)/4 = $192,500; $160,000/4 = $40,000.
EA: No
8-80
103. Which of the following entity(ies) is(are) considered flow-through entity(ies)?
A. C corporation.
B. sole proprietorship.
C. non-profit corporations.
D. estates.

EA: No
104. Earl and Sandra own and operate a restaurant as an S corporation. Each is a 50% owner.
The business reports the following results for the year:
How do Earl and Sandra report these items for tax purposes on each of their individual
returns?
A. $41,000 income on Schedule E; $16,000 investment expense on Schedule A.

B. $41,000 income on Schedule E; $32000 investment expense on Schedule A.
C. $82,000 income on Schedule E; $32,000 investment expense on Schedule A.
D. $480,000 income on Schedule E; $16,000 investment expense on Schedule A.
($480,000 - $398,000)/2 = $41,000: $32,000/2 = $16,000.
EA: No
8-81
Short Answer Questions
105. When reporting the income and expenses of a rental property, what determines the use of
the Schedule C versus the Schedule E?
Generally, if a taxpayer materially participates in the operations and decisions of a

property and is considered a real estate professional, then the rental activity should be
reported on Schedule C as a trade or business. Otherwise, the rental activity should be
reported on Schedule E.
EA: Yes
106. What must the owner of rental property do with respect to the rental activity to have it be
considered:
1) material participation?
2) A trade or business?
1) Generally, if the taxpayer works on a regular, continuous, and substantial basis in the
operation of the rental, then the taxpayer is considered to have material participation.
2) To be considered a trade or business, the taxpayer must materially participate as a real
estate professional.
EA: Yes
8-82
107. What is meant by ordinary rental expenses and what criteria must be met to be
deductible? Provide some examples of deductible rental expenses. For this question,
assume no personal use of the rental property.
Generally, rental expenses must be ordinary, necessary, and reasonable. An ordinary

expense, in this case, is one that is customary or usual for rental property. The necessary
criterion refers to an expense that is appropriate and helpful rather than one that is
essential to the taxpayer's activity. Reasonable refers to amount and relationship of an
expense to its "rental" purpose. Deductible expenses include advertising, depreciation,
repair and maintenance, interest, taxes, management fees, and travel expenses.
EA: Yes
108. What are the criteria that determine an amount as capital improvement rather than repair
and maintenance expense? What is the proper tax treatment of a capital improvement for
rental properties?
Allowable repairs are expenditures that neither materially add to the value of the property
nor appreciably prolong the property's life. Any repairs in the nature of a replacement that
add to the value of the property and/or prolong the property's life are capital
improvements rather than repairs and maintenance. Capital improvements are capitalized
and depreciated using the straight-line method over the appropriate depreciable life-27½
years (residential) or 39 years (non-residential). Repairs and maintenance are allowed as
an immediate expense deduction.
EA: Yes
8-83
109. Explain the three categories that a rental activity may fall under if used for both personal
and rental purposes. How are the categories determined?
Rental property can be categorized as primarily rental use, primarily personal use, and
personal/rental use. The categorization depends on the number of rental days compared
to the number of personal days the rental property was used. When property is rented for
less than 15 days, the property is considered primarily personal. If the property is used
personally for no more than 14 days (or 10% of total rental days) and rented for 15 days or
more, the property is considered primarily rental. Lastly, if the property is rented for 15
days or more, and personal use exceeds the greater of 14 days or 10% of total days rented,
then the property is categorized as personal/rental.
EA: Yes
110. What criteria determine a personal and rental use property as personal/rental? How is net
income or loss treated for tax purposes for a personal/rental property?
If a property is rented for 15 days or more and personal use exceeds the greater of 14 days
or 10% of total days rented, then the property is categorized as personal/rental. In the
case of a personal/rental property, a taxpayer can deduct expenses only to the extent that
there is rental income (i.e., no net loss is allowed).
EA: Yes
8-84
111. What are the rules concerning the deductibility of travel as it relates to rental properties?
How are travel expenses to and from rental properties calculated?
Travel costs from the taxpayer's home to a rental property are deductible if the travel is for
business purposes. For example, expenses to conduct repairs or attend a condo
association meeting are deductible. The standard mileage rate for business is used in
calculating any travel concerning rental property (the rate is adjusted each year for
inflation). The amount calculated is deducted on Schedule E as part of rental expense.
EA: Yes
112. Kirk and Amy live in Augusta, Georgia. Every year during the Masters Golf Tournament,
they rent their primary personal residence for 10 days for $10,000 to a large corporation
that uses it to entertain clients. The rest of year, they reside full-time in their home. How
should Kirk and Amy treat the rental income? Explain.
If a residence is rented for less than 15 days, the property is considered "primarily
personal" property. When a property is categorized as primarily personal, none of the
rental income has to be included in gross income, and no deduction is allowed for rental
expenses.
EA: Yes
8-85
113. Explain the difference between the two methods available; the Tax Court's method and
the IRS method, to allocate expenses between personal and rental use of property.
If using the IRS method, expenses are allocated to the rental property based on the ratio
of the number of rental days to total number of days used. The rest of the expenses are
allocated to personal use. If using the Tax Court method, interest and taxes are allocated
to the rental property by the ratio of the total rental days to the entire year (365 days)
while the remaining expenses are allocated based on the ratio of the number of rental
days to total number of days used (as in the IRS method). The Tax Court method yields a
smaller percentage of the interest and taxes allocated to rental income. This allows a
larger portion of depreciation expense to be used to offset rental income.
EA: Yes
114. Explain what is considered personal use of a rental property.
Personal use of a dwelling is any use by:
1. The taxpayer, any member of the taxpayer's family, or any other person with an interest
in the unit.
2. Any individual who uses the unit under an arrangement that enables the taxpayer to use
some other dwelling unit (reciprocal-use arrangement).
3. Any individual unless for such day the dwelling unit is rented for its fair rental value.
If a taxpayer lets anyone, family or non-family, use the rental property free of a rental
charge, those days are considered personal use days by the taxpayer, unless the taxpayer
was performing repairs on the property. If any family member uses the rental property
(whether or not he/she pays fair rental value) the days are considered personal use days.
EA: Yes
8-86
115. Meredith has a vacation rental house in the Sierra Mountains. During the year, she and
her immediate family used the house for 12 days for a personal vacation. Meredith spent
two more weekends (4 days in total) repairing the deck. The house was rented for 120
days. How should the cabin be categorized this year for tax purposes? Explain your
answer.
If rental property is used for no more than 14 days for personal purposes, it is considered
"primarily rental" property. Days spent working on the house are not considered personal
days.
EA: Yes
116. Assume the same facts as #71, but Meredith rented her house (at fair value) to her
brother and his family for 9 days (in addition to her personal use) and total days rented
was 180 days. How is the cabin categorized now? Explain your answer.
The cabin is now categorized as personal/rental since the property would be used for
more than 18 days for personal use. Rental by family members still counts as personal use
even if it is rented for the fair rental value.
EA: Yes
8-87
117. Define royalty income. What criteria determine which form is used and where the royalties
are reported?
Royalty is a payment for the right to use intangible property such as income received from
books, stories, plays, copyrights, trademarks, formulas, patents, and from the exploitation
of natural resources such as coal, gas, or timber. If the royalty is a result of a trade or
business, the taxpayer should report the royalty income on Schedule C. However, if the
royalty income is produced by a non-trade or non-business activity (such as an investment
or a "side-project"), then the royalty should be reported on Schedule E.
EA: Yes
118. What are the different types of income that may be reported on Schedule E?
Income and expenses associated with rental properties, royalties, and flow-through
entities are the types of items known as income "for the production of income" property
that are reported on Schedule E of Form 1040. Income and expenses from rental
properties and royalties are reported in Part I of Schedule E, and certain items from flow-
through entities such as partnerships, S corporations and estates and trusts are reported
in Part II and Part III of Schedule E.
EA: Yes
8-88
119. What is meant by a passive activity? Why is a rental activity classified as a passive
activity? Can a rental activity be classified as active? Explain.
A passive activity is an activity in which the taxpayer does not materially participate in the
operations of the endeavor. A rental activity is classified as a passive activity, by definition,
even if the taxpayer materially participates in the activity (so therefore, it is an exception
to the specific definition). It may be classified as an active trade or business, if the
taxpayer materially conducts the rental activity as a real estate professional. In that case,
the rental activity is not a passive activity and the passive loss limitation does not apply.
The rental activity, in this case, is then reported on Schedule C as a trade or business.
EA: No
8-89
Another random document with
no related content on Scribd:
taitamattomasti, että joutui selin lehmänraatoon. Karhu taas nousi
raadon vieressä olevaan puuhun, arvellen sieltä kaikki hyvin
näkevänsä, mutta silti olevansa luokse pääsemättömissä. Puun
oksat kuitenkin estivät häntä joka suunnalle näkemästä.
Pamppailevin sydämin siinä sitten odotetaan pelätyn ja kunnioitetun
vieraan tuloa.
Tällä välin olivat kettu ja kissa lähteneet tulemaan pitopaikalle,

kettu edellä ja kissa jäljessä. Siinä raadon vieressä oli suota, jonka
yli heidän matkansa piti, ja yli tultuaan kissa päristeli vettä
käpälistään, se kun ei siedä niiden kastuvan. Senpä kuuli karhu ja
sopotti hiljaa sudelle: »Jo tulee! On se aika vänni, kun tulta iskee
tullessaan! Kunhan ei olisi tuota lihaa liian vähän!» Haistaessaan
sitten tuoretta lihaa rupesi kissa luontonsa mukaan kovasti ja
vihaisesti marmattamaan, jolloin karhu taas kuiskasi uteliaalle
sudelle: »Ei ole iso tuo herra Vinkkeli väkimies, vaan maa silti tärisee
jalkain alla, kun kävelee!» — »Jos se väheksii ruokaa?» pelkäsi siinä
susi ja koetti katsoa, mutta ei nähnyt mitään, kun oli selin kissaan.
Kettu huomaa suden ja suhahtaa hänelle: »Kyllä siinä on poikaa,
saa nähdä vain, ettei tässä vielä tule oudot paikat!» Kun kissa söi
ahnaasti, marahteli, sähisi että »vähä, vähä, vähä», jolta se kuulosti
karhun korvissa, ja liikautteli salaperäisesti häntäänsä, suhahti karhu
ketulle: »Mikä sillä tuossa liikkuu?» — »Se on hänen miekkansa,
jolla hän kaulan katkaisee», kuiskasi kettu vastaan. »Millainen se
lienee otus, kun se noin pelottelee?» ihmetteli susi siellä risuläjässä
eikä enää malttanut, vaan rupesi hiljalleen kääntyä sovittelemaan,
että saisi hänkin edes vilahduksen siitä nähdä. Kissa kuuli ratinan ja
pörhisti häntänsä ja kaikki karvansa pystyyn sekä katsoi risukkoon
tarkasti, että mikä siellä. Silloin kävi sudelle onnettomasti.
Vaikka hän koettikin varovaisesti kääntyä risukasassaan, sattui
hännän pää kuitenkin vilahtamaan kissan silmiin. Kissillä nousi heti
vanha luonto ja hän puhaltautui kuin salama sen luulemansa hiiren
niskaan. Kauhistus valtasi silloin hukka paran kokonaan ja
parkaisten hätähuudon: »Tuli minuhun käsiksi nyt tämä!» hän lähti
menemään minkä käpälistä irti sai, parkuen surkeasti mennessään:
»Tule, Mikko, hätiin! Tule, Mikko, hätiin!» Mutta eipä ollut itse
kissakaan vähemmän hädän vallassa. »Mikä tämä näin suuri elävä!»
säikähti hän kokonaan ja karkasi lähimpään puuhun kuin paukku.
Nähdessään kissan hyppäävän suden niskaan ja tämän lähtevän

pakoon täyttä karkua sekä kissan siinä samassa törmäävän hänen
puuhunsa, kierähti karhulla maailma pari kertaa silmissä ympäri ja
aivoissa vilahti hätäinen ajatus: »Hukka pääsi tuon topakan elävän
kynsistä ja nyt se tulee minua syömään!» Kumeasti parkaisten
loikkasi hän puusta korentona maahan ja huusi Mikkoa hätiin sekä
läksi surkeasti nilkuttaen ja kylkiluitansa tunnustellen pakoon hänkin
kiireimmän kyytiä. Mutta yhtä säikähtyneenä kissa istua kökötti
oksan juurella, häntä paksuna ja karvat pörhöllään, sekä kiukkuisena
sähisi pakenijoiden jälkeen:
»Pyssy sunkin pyyhkäisevi,

Reikärauta raiskoavi
Miehen mahtavan käsissä!
Sepä nahan nauloavi,
Puun on päällä pelttoavi,
Pakkasen pakottimeksi,
Herrain turkin kaulukseksi!»
Nauruunsa ihan pakahtuen oli kettu liuvari katsellut tätä kohtausta

ja suden sekä karhun paetessa muka huutanut kissalle aivan
kauhistuneena: »Mittymys! Mitäs teet! Ole noiden raukkojen kanssa
siivolla! Sinäpä olet oikein hävytön: toiset kutsuvat sinut kestinkiin ja
sinä nyt isäntiäsi rupeat tappamaan!» Mutta kun susi ja karhu olivat
kadonneet näkyviltä ja kuuluvilta, muuttikin kettu äänen kelloonsa ja
sanoi riemuiten: »Kotsa Muilovits, meidän oli voitto! Tule vain pois
sieltä liharuoan ääreen!» Ja kissakin pian rauhoittuu, laskeutuu
maahan ja tuumii juron tyytyväisesti: »Hyvähän tästä tulikin meille
kauppa!» Aletaan syödä ja syödään kylläkään, ihan viikkoja
syödään, mutta karhu ja susi eivät pitkään aikaan tarjenneet mennä
koko seudulle. Eivät, vaan ensi kertaa toisensa tavatessaan he
keskustelivat asiasta yhä entistä enemmän ymmällä. »Ei se kumma
ole», sanoi susi, »että se on ennenkin suden tappanut, kun niin äkkiä
minutkin löysi risuläjästä, töytäsi päälle ja oli viedä kokonaan!»
Siihen arveli karhu: »No, sehän nyt ei vielä kumma ollut, että löysi
sinut sieltä risuläjän alta, mutta se oli jo vallan ihmeellistä, että se
tiesi minun olevan siellä puussa! Ja kun kerkesi siinä lyödä minua
miekallaan, että vieläkin ovat kylkeni kipeät!»
Ja he kiittivät onneaan, kun olivat päässeet hengissä pakenemaan

sen ihmeellisen ja pelottavan herra Vinkkelin, Katal Ivantsan, Kotsa
Muilovitsin kynsistä, jolla on niin monta outoa nimeä, joka on paljon
ulkomailla matkustellut ja joka on nyt tullut käymään veljensä Kettu
Repolaisen luona täällä kaukaisessa Metsolassa.
Mutta nähdä se pitäisi saada, oikein kyllältään sitä katsoa. Se oli

kaikesta huolimatta karhun ja suden salainen ja vielä täyttymätön
toivomus.
XXXV.
EI SE OLE HULLU, JOKA NARRAA, VAAN JOKA ITSENSÄ NARRATA ANTAA.
Pian hurskas hullummalla

Salmen syvän sauvottaapi —
Itse soutavi matalan.
Eletään sitten yhä edelleen kettu ja kissa yhtenä talona ja hyvin

tullaankin toimeen. Loppui kuitenkin kerta ruoka ja ketulla rupesi
himoittamaan tuoretta kalaa. Hän muisti Piippolan äijän suurta
kalansaalista ja ajatteli, että mitenkähän saisi taaskin kyllältänsä
kalaa syödä. Ei muuta kuin lähti juoksentelemaan sinne Piippolan
järven rannalle ja löysikin sieltä rannalta kalan, mutta eipä
syönytkään sitä. Ei, vaan koppoi sen leukoihinsa ja läksi
juoksentelemaan Piippolan pihalle, siitä ikkunan alta mennä litvitteli
kala suussa, ajatellen: »Minäpä narraan Piippolan äidin ulos
tuvasta!» Akka huomasikin hänet ja kysyi: »Mistä sinä, kettu kulta,
olet kaloja saanut?» — »Järvestä, järvestä», vastasi kettu ja meni
menojansa. Rupesi akan tekemään kalaa mieli ja hän meni ukkonsa
luo, joka oli pellolla ojaa luomassa, ja sanoi: »Mennään mekin kaloja
pyytämään, koska ketullakin on». — »Mennään vain», mukautui
ukko ja niin lähdettiin kalalle, ja saatiinkin runsas saalis. Mutta kettu
piti varansa, varasti niitä kaloja kaksi, joista toisen antoi kissille ja
varoitti kovasti: »Älä sano kenellekään!» Mutta kissipä ei
malttanutkaan, vaan kävi sanomassa rengille, renki sanoi piialle,
piika sanoi emännälle, ja emäntä sanoi isännälle. Isäntä siitä
haukkumaan kettua ja kettu haukkumaan kissiä, joka hyppäsi isoon
puuhun. »Kyllä minä sinut sieltä tavoitan!» vannoi kettu ja pudisti
puuta, jolloin kissi putosi sieltä hänelle suuhun. Riemuissaan sanoi
kettu silloin: »Luulin olleen sokeripalan, mutta olikin valkoinen katti ja
katin kala!» Ei kuitenkaan raahtinut Mittymykselle pahaa tehdä, otti
siltä vain kalan pois, mutta tästä kissa suuttui julmasti ja läksi
takaisin kotiinsa Ilmolaan, ja siihen loppui se ketun ja kissan
yhteinen talous. Eikä kettu sitä surrut, vaan luikki takaisin metsään
iloissaan, kun oli taas saanut kaloja syödä.
Kulki kettu siinä, litvitteli, pitkin Metsolan maita, ainainen koiruus

mielessä, kun tulivatkin hänelle vastaan susi ja karhu. »Mitenkäs nyt
renkisi jaksaa?» kysyi susi heti. »Hyvin jaksaa», vastasi kettu,
»mutta niin on tullut laiskaksi, ettei muuta kuin ontossa hongassa
makaa ja itseään syötättää.» — »Missä!» tohahtivat heti karhuja susi
uteliaina, »jokohan tuon nyt saisi nähdä, kun se nukkuu siellä
hongan sisässä?» — »Eihän hongan sisään voi nähdä», nauroi
kettu, »mutta jos se sieltä hyvinkin saataisiin pois lähtemään.
Tulkaahan auttamaan, jos mikä hyvä keino siihen keksittäisiin.»
Lähdetään ketun suurelle, kaatuneelle hongalle, jonka sisään Kattes-
Johannes oli muka äkäytynyt, ja kettu varaa vahvan köyden
mukaansa. Tullaan paikalle ja kettu sanoo: »Pannaan tämä köysi
kiinni tuohon honkaan ja vedetään se koskeen, niin eiköhän sieltä
tule Mittymykselle lähtö.» — »Ka, miksi ei», sanoi karhu, »tehdään
vain niin», ja sitten kettu valjasti hukan ja karhun honkaan, sitoen
heidät molemmat lujasti kiinni. Itsehän istui hongan päälle ja käski
toisten vetää, hän kun muka työnsi sieltä takaa.
Tultiin sitten kosken rannalle, jolloin kettu pudottautui pois hongan
päältä ja kehoitteli karhua ja sutta: »Minä työnnän, menkää vain
veteen, ei siinä syvä ole, vetäkää honkaa koskeen; kyllä sen sitten
koski vie, kun se joutuu virran niskaan!» Toiset tekevät kuten kettu
käskee, ja menevät koskeen vesikiviä myöten, kunnes honka tulikin
veden varaan ja virta läksi sitä viemään, raastaen Pekan ja hukan
mukanaan. Surkea parku pääsi silloin molemmilta ja he rupesivat
huutamaan: »Tule, Mikko kulta, apuun, täällä tulee kuolema!» Mutta
kettu vastasi siihen, että joka koskeen menee, se saa koskessa olla,
eikä hän tohdi tulla sinne. Karhu ja susi saivat siten laskea koko
kosken, mutta pelastuivat kuitenkin onnettomat hukkumasta, purivat
köyden poikki ja uivat suvantoon päästyään maihin. Kettu liuvari
juoksi kotiinsa.
Mutta siellä häntä odottikin suuri hämmästys. Kääpälän vaari, joka

oli kova metsämies, oli osunutkin hänen pesälleen ja oli juuri
rupeamassa hänen poikiaan tappamaan, kun Mikko joutui paikalle.
Hätääntyneenä sanoi Mikko heti: »Kun et ota minun poikiani, niin
minä neuvon sinulle hukan pesän». Vaari suostui siihen, meni ketun
neuvokin mukaan hukan pesälle ja tappoi hukan poika parat kaikki.
Mutta kettu ryntäsi täyttä karkua takaisin koskelle hakemaan hukkaa
ja karhua, kertoakseen heille, mitä oli tapahtunut. Pian hän tapasikin
heidät ja huusi: »Kattes-Johannes on mennyt Kääpälään takaisin ja
Kääpälän vaari on tappanut kaikki hukan pojat!»
Silloin sanoi hukka synkästi: »Tästä tulee sota!»

XXXVI.
EI SE SOTA MITÄÄN, VAAN NE HANKKEET.
Sorea sotahan kuolla,

Kaunis miekan kalskehesen,
Äkin poika pois menevi,
Laihtumatta lankeavi.
Raivoissaan siinä karhu ja susi kiroava ilmolaisia ja heidän pahoja

tekojaan sekä uhkaavat sodalla; kettu kavalana vieressä heitä yhä
enemmän usuttaa. »Tuolla on salolla», sanoo hän, »Ilmolan karjaa
laitumella. Isketään siitä lehmä, niin on aluksi meillä sotaeväitä».
»Isketään!» tulistuivat siitä toiset, »mennään lehmikarjaan, sillä kovin
tässä nyt himoittaisi lehmä sortaa!» Ja karhu varsinkin kopristelee
kynsiään innoissaan, että nyt! Mennään siitä lehmikarjan luo ja kettu
näreiköstä piilosta rupeaa katsomaan, kun karhu ryhtyy lehmää
kaatamaan.
Karhu nousee haolle, kohoaa kahdelle käpälälle ja valmistautuu

hyppäämään lehmän selkään. Jopas hyppääkin, mutta ei laskekaan
innoissaan voimiaan oikein, vaan oistona lehmän yli lennähtää ja
lehmä pääsee pakoon. Samalla kettukin sieltä syrjästä tekee kiusaa,
räsähtää ja arvelee: »Jo tuli talon isäntä lehmää vahtiin!» Silloinpa
pelko tapasi sekä karhun että suden ja he lähtevät mennä
kaapaisemaan pakoon, laukkaavat virstaa viisitoista, ennen kuin
pysähtyvät, kettu viivana perässä. Pysähdytään viimein ja kontio
rupeaa pahoittelemaan, kun ei saanutkaan lehmää. Kiukustuu siinä
kovasti uudelleen, nousee haolle ja siitä taas hypätä hurauttaa. »Kun
olisin näin hypännyt», sanoi hän, »niin saanut myös olisin!» —
»Mitäpä siitä turhasta hyppelemisestä», sanoo nyt kettu, »ethän sillä
kuitenkaan lehmää saa. Oikea sota tässä on pystyyn pantava, sillä
eivät niiltä muuten pahat konstit lopu!» »Mitenkä sitä sitten
sodittaisiin?» kysyvät karhu ja susi. Kettu vastasi: »Kootkaa te kaikki
metsän elävät, niin minä kokoan kaikki kylän elävät, ja ruvetaan
sotimaan.» No toiset suostuivat siihen.
Ruvetaan sitten sotajoukkoa molemmat puolet kokoamaan. Kettu

menee Ilmolan kylään ja selittää siellä kaikille kotieläimille asian,
sanoo, että suuren sodan nyt panevat alkuun ilmolaisia vastaan
karhu ja susi. Siitäpä kylän eläimet puolestaan ryhtyvät puuhiin ja
kootaan kaikki koirat, kissat, kanat ja rotat, ja kettu ne järjestää
komppanioiksi ja kaikille antaa passit mukaan. Ottaapa isotkin
eläimet, härät, lehmät, lampaat ja siat, ja kissan sekä koiran panee
koko sotajoukolle kenraaleiksi, kehuen, että siinä on kaksi oikein
vahvaa miestä. Susi ja karhu puolestaan kokoavat kaikki eläimet,
mitä metsässä on, karhuja, susia, ilveksiä, jäniksiä, oravia ja jos
mitä. Niin on molemmilla puolilla ankarat sotajoukot pian koossa,
eikä muuta sitten kuin marssimaan toisiaan vastaan. Karhu on
kenraalina metsän elävillä.
Tuli siinä torapaikalle mennessä kotieläimille vastaan iso joki ja

alkoi ylimeno. Rotat menivät ensiksi, panivat passit suuhunsa ja niin
pääsivät kauniisti yli. Katsottuaan taaksensa he näkivät kissain
komppanian tulevan rannalle ja vuorostaan harkitsevan ylimenoa,
Rotat silloin huusivat toiselta rannalta: »Pankaa passit häntänne alle,
teillä on niin iso häntä!» Kissat arvelivat että siten tehdenpä taitavat
passit säilyä kuivina ja noudattivat neuvoa. Mutta siinä samassa, kun
he uimasilleen joutuivat, hännät nousivatkin pystyyn, ja niin vei virta
heiltä passit hännän alta. Nolostuneina ja kiukustuneina siitä kissat
uhkasivat: »Kyllä me petämme koirat, koska kerran meitäkin
petettiin!» Tulivat koirat sitten kissain perässä rantaan ja miettivät
vuorostaan ylimenoa. Silloinpa kissat huusivat heille: »Pankaa passit
häntänne alle, teillä on niin leveä häntä!» »Ahaa!» ilostuivat koirat,
»sitenpä ne taitavatkin säilyä kuivina», noudattivat neuvoa ja lähtivät
uimaan. Mutta heti kun he olivat päässeet veteen, lensivätkin hännät
päin pilviä ja passit pitkin jokea. Kovasti siitä koirat suuttuivat, niin
että kun he vihdoin pääsivät toiselle rannalle, oli koko sotakuri
höltyä, kun alkoi siinä aivan tavaton tappelun rähinä ja nujakka,
jossa molemmat puolet vannoivat toisilleen ikuista vihaa. Saatiin
kuitenkin vihdoin järjestys palautetuksi ja jatkettiin marssia
sotakentälle.
Lähestytään sitten sotapaikkaa ja toinen ylikenraali, koira, rupeaa

pitämään tuumaa kissalle sanoen: »Ota sinä nyt — se työntää
kuitenkin susi karhun etukynteen — mene sinä nyt hyvin alaksittain.»
Koiralla itsellään oli hiukan jalka kipeä, jonka vuoksi hän nilkutti
mennessään ja kissa piti häntäänsä, pörhistäen sitä, korkealla
pystyssä. Sen huomatessaan neuvoi kettu: »Pannaan nyt jokainen
hännät hyvin pystyyn, kun mennään!» ja niin tehtiinkin. Kun karhu
näki kaukaa vihollisen sotajoukon tulevan ja paljon piikkejä pystyssä,
säikähti hän ja sanoi: »Oi voi, kun on noin paljon pyssyjä jokaisella
— siellähän tulee yksi iso edellä ja tuhat tuhatta pientä perässä,
sapelit kaikilla pystyssä — kyllä nyt on parasta, että lykätään pakoon
vain!» Ja susi osoitti kissaa ja koiraa huomauttaen: »Kas, tuolla kun
on sapelipystyssä ja tuo noukkii kiviä!» Miehistyttiin siinä vielä
kuitenkin ja karhu lähtee johtamaan sotajoukkoaan vihollista
vastaan.
Kissi nyt tulla lutmii, lutmii alaksittain karhua vastaan ja orava

huutaa karhulle: »Varo, varo! Se vetää riukua perässään!» Mutta
ennen kuin karhu ehtii paljon huomatakaan matalana hiipivää kissiä,
on tämä jo töytännyt hänen mahansa alle ja alkaa häntä kurkusta
topistaa. Karhu säikähtää, kämähtää paikalla selälleen ja rupeaa
huutamaan: »Kuka kurkkuani topistaa!»
Pelko valtasi silloin koko metsän eläinten armeijan, kun näkivät,

että tuossa on nyt itse iso kenraali töppöset taivasta kohti, täyttä
kurkkua huutamassa. Orava karkasi pakoon puuhun ja ihmetteli
sieltä, lyöden kahta kämmentä: »Voi kummaa, kun nyt kaikkein
pienin elävä meidän vahvimman viskasi selälleen! Toden totta, Kies
auta, nyt ei ole oikea jalassa!» Ja niin pian kuin karhu pääsi pystyyn
taas, komensi hän armeijansa pakoon huutaen että pelastakoon
itsensä ken voi, ja näytti itse miehistölleen esimerkin siitä, kuinka
voittoisan vihollisen edestä on paettava. Niin hajaantui koko armeija.
Juostuaan niin kauan, että varmasti tiesi olevansa turvassa, pääsi
karhu vasta rauhoittumaan tuumien lopuksi: »Kylässä on kylän
kalut!»
Sitten karhu tunsi kyllästyvänsä koko tähän alituiseen vaivaan ja

seikkailuun, jossa aina kävi niin onnettomasti. Hän katsoi
ympärilleen, huomasi kellastuneiden lehtien putoilevan puista,
näkipä myöskin, kuinka ensimmäiset lumihiutaleet hiljaa leijailivat
alas syksyiseltä taivaalta, ja tunsi, kuinka häntä rupesi makeasti
nukuttamaan. »Ei, pois minä katoan Metsolan synkimpään saloon
pahan maailman jaloista, sinne menen talvitalolleni ja lyöttäyn
maata». Näin päätteli karhu ja läksikin heti talvipirttiään kohti. Ja
varmasti hän olisikin siinä samalla päätöksensä toteuttanut, ellei
eräs odottamaton ja outo tapahtuma olisi häntä vielä vähän aikaa
viivyttänyt.
XXXVII.
MITENKÄ KÄVI KÄRPÄN NYLKY, ORAVASTA NAHKAN OTTO?
Puhas putki valkolainen,

Kaunis talven karvallinen,
Ainoa ahokananen,
Kukka kuusen juurellinen.
Edellisessä on jo tullut mainituksi, että Kääpälän vaari oli kova

metsämies, joka ihan täytti koko Metsolan susihaudoillaan ja
karhunloukuillaan, käpylaudoillaan ja linnunpermillään. Niinpä hän
heti tänäkin syksynä, kun vain satoi ensimmäisen vitilumen, että
metsän juoksijain jäljet rupesivat näkymään, ryhtyi kiireesti
virittelemään kärpänrautojaan, koska kärpännahat silloin olivat
hyvässä hinnassa. Mutta tästäkös kaikki metsän kärpät häntä
kovasti vihasivat ja toivoivat, että hän kerta itse joutuisi omiin
rautoihinsa ja saisi tuntea, minkälaista on niiden kipeä ja kuolettava
puristus. Salaa he aina ukon kintereillä luikkivat ja pitivät silmällä,
eikö kerrankin sattuisi pahan onnen siipi äijän ryökälettä
sipaisemaan.
Ja jopas kerran sattui. Läksi ukko tapansa mukaan eräänä
aamuna, kun oli vielä hämärä, kärpänrautojaan kokemaan, kulkea
kahnusteli ohuessa syyslumessa ja kaukaa aina raudoillensa
kurkisteli, vieläkö oli vireessä ja oliko syötti koskematta. Näytti sitten
eräässä syötti joutuneen vikaan ja olevan korjauksen tarpeessa.
Ukko tulee ääreen, kurkottaa kädellänsä ottaakseen rautansa, kun
samassa jalka lipeääkin liukkaassa lumessa. Ukko kompastuu siihen
rautansa päälle, joka laukeaakin hänelle kurkkuun kiinni, ja
samallapa siihen vielä töytää pensaikosta kärppä surmaraudan
avuksi äijälle niskaan. Ei auttanut mikään, henki siinä nitistettiin
Kääpälän vaarista. Voitonriemuisena kärppä nousi ukon päälle
seisomaan ja kiljaisi:
»Itse puuttui pihtilöihin,

Latsistihe lautasihin!»
»Mitähän tuolla ukko-pahuksella nyt tekisi?» mietti hän

sitten touhuissaan, kunnes näki samassa ukon kelkan.
Mitäpäs siinä sen enempää miettimistä: kärppä viskasi ukon
ruumiin kelkkaan ja läksi oikein aika miehenä sitä vetämään
pitkin Metsolan lumista tanhuata.
Sattui silloin tulemaan jänis vastaan, istahti

hämmästyneenä, kun näki kärpän toimessaan kelkalla
raahaavan perässään Kääpälän vaaria, ja kysyi silmät
muljollaan: »Mitäs vedät, kärppä rukka, näin varhain
aamulla?» No sepäs kysymys oli nyt kärpälle mieluinen
vastattava, kun sai kerrankin purkaa vihansa mokomaa
kiusallista ja vaarallista pyytömiestä kohtaan ja samalla
kerskaten kertoa, miten ukolle lopuksikin kävi. Nopeasti hän
kavahti ukon niskalle istumaan, pyyhkäisi viiksiänsä ja alkoi
herjata ukkoa.
»Sitähän minä tässä», murisi hän, »kannan kantamista ja

riuhdon riuhtomista, kun tuo vanha iänikuinen äijän käni pisti
piikkinsä ja pihtinsä pirtin päälle, laski lautaset latikan päälle,
eikä totellut, jumalaton, vaikka kiellettiin».
Hän selitti asian jänikselle ja kehoitti, kun jänis

innostuneena pyysi päästä mukaan ukkoa vetämään: »Ka
tule, kanssani. Haukkaa pala ja käy vetämään»! Niin
lähdetään yhdessä ukkoa vetää junnaamaan.
Vedetään, vedetään siinä hartaasti hetken aikaa, niin jo

kopeutuu
eteen itse Mikko mielevä mies, Repolainen, hämmästyy kovin
mokomata
kulkuetta ja kysyy sirosti ja kohteliaasti kuten aina:
»Mitä vedät, jänöjukka,

Jäljessäsi jylkyttelet?»
Ei vastaa jänis, kärpälle vain viittaa, ja tämäpäs piukaiseekin

vastauksensa niin komeasti, ettei paremmasta apua.
»Kannan tätä kantamista,

Riuhdon tätä riuhtomista,
Ukkoa, pahoa miestä.
Kun tuo vanha äijä-reppu
Pani pihdit pirtin päälle,
Lautaset latikan päälle,
Meille metsän juoksijoille,
Huutehen vilostajille,
Hämärässä häksäjille,
Pimeässä piksajille,
Kastehessa kahlojille,
Rahakarvan kantajille,
Päällä puiden puikkiville…»
»Mutta», ja tähän kärppä pysähtyi, että kettu kerkesi kysyä, miten

ukko oli joutunut tuohon kelkkaan hengettömäksi, jolloin hän ylpeästi
lopuksi julisti entiseen tapaan:
»Itse puuttui pihtilöihin, latsistihe lautasihin!»
»No jopa nyt peräti!» ihmetteli kettu. »Saisiko tulla mukaan?» —

»Ka tule, kanssamme! Haukkaa pala ja käy vetämään!» Haukkasi
kettu silloin aimo palan ja alkoi myhäillen toisten kanssa vetää
junnata ukkoa edelleen. Tulee siinä taas uusi tulokas vastaan,
hukka, ja eipäs muuta kuin että hukkakin haukkaa aimo palan ja
yhtyy muiden kanssa ukkoa vetää junnaamaan. Mennään siinä taas
hyvän aikaa, kun jo nähdään itse kontion tulla jylkyttelevän vastaan.
»Mitäs, veikkoset, vedätte, jäljessänne jylkytätte?»
kysyy kontio ylen ällistyneenä mokomasta kulkueesta, kun on siinä

kelkka, kelkassa kuollut ukko ja kelkan jutkossa kärppä, jänis, kettu
ja susi. Kovin oli karhu ihmeissään kuultuaan kärpän selityksen.
Häntäkin haastettiin nyt mukaan vetämään ja vaikka hänen
makuullemeno-matkansa täten keskeytyikin, innostui hän kuitenkin
yhteiseen asiaan, haukkasi suuntäyteisen palan ukosta ja liittyi
jutkoon hänkin junnaamaan. Kuljetaan siinä taas hyvän aikaa,
vakaina kaikin jutkosta kelkkaa vedetään, kun jo puuttuu orava
vastaan, narskuttaa ihmeissään oudolle kulkueelle ja pyytää tietoa,
mihin siinä nyt mennä jylkytetään. Selitetäänhän asia oravallekin
aivan tarkalleen, ei kitsastella, käsketään hänenkin haukata pala ja
tarttua vain jutkoon, tätä Kääpälän pahaa ukkoa vetää junnaamaan.
Ja liittyihän orava joukkoon, jutkoon tarrasi hänkin kiinni ja lähti vetää
vänkäämään hartaasti omalta osaltaan, haukattuaan tulopalan ukon
kyljestä.
Kuljetaan siten hyvässä sovussa, vedetään ukkoa ja aina väliin

haukataan hänestä palanen. Kului siinä täten päivä lopulleen ja
pianpa ei ollut ukosta jäljellä muuta kuin housunpuntit. Tuntuipa jo
vähän väsyttävänkin, ja kettu rupesi tuumailemaan, minnekäs tässä
nyt yöksi joudutaan. »Tuolla on, minä tiedän, vanha susihauta»,
neuvoi karhu, »mennään vaikka sinne, niin ei ainakaan tuuli koske».
»No mennään vain», mukautuivat toisetkin ja niin mentiin vanhaan
susihautaan yöksi.
Haukoteltiin nyt siinä susihaudassa miehissä, käännettiin kylkeä ja

koetettiin päästä unesta kiinni, mutta ei tulekaan unonen. Illan tuuli
vain suhajaa Metsolan korkeissa puissa ja pilvet vaeltavat taivaalla,
kuuhuen niiden lomista silloin tällöin esiin kurkistellessa. Sanoo
kettu: »Ei tulekaan meille vielä uni. Tässä tarinoikaamme ja siten
iltaa rattoisasti viettäkäämme. Kuka ensimmäisen tarinan kertoo?»
Toisistakin oli ketun tuuma veikeä ja orava kohta innostuu: »Minä
kerron, tarinan tiedän ylen soman!»
XXXVIII.
SIINÄ SE PIENIKIN PISTELEIKSE, MISSÄ SUURIKIN KÄÄNTELEIKSE.
Oravainen kumman kukka,

Kummun kultainen omena,
Oksalla ojenteleikse
Lehvällä levätteleikse.
»Olipa kerran», alotti kertoja — »orava sellainen, ettei moista, —

minun ukkovaarini se olikin. Siltä olivat menneet housut rikki, niin
lähti neulaa lainaamaan, että saisi paikata pöksynsä. Haki neulaa,
etsi, kunnes löysi koiran, joka oli turkkiaan ompelemassa oikein
hyvällä neulalla. Mitäpäs muuta kuin orava kärttämään koiralta
neulaa lainaksi, sanomaan: 'Lainaa sinä sitä neulaasi, että saan
housuni paikata.' Koira, joka oli siihen aikaan hyväluontoinen,
lainasikin, ja niin ukkovaarini paikkasi pöksynsä eheiksi ja hyviksi.
Mutta siinä hän oli huomannutkin neulan niin teräväksi, ettei
raskinutkaan siitä enää luopua, vaan arvellen, että lienee noita
koiralla neuloja liikenemäänkin, karkasi kuuseen neuloineen. Koira
siitä kuitenkin vihastui kovasti ja rupesi vaatimaan kiivaasti neulaa
takaisin, niin äkäisesti, että ukkovaarikin jo suuttui ja pilkkasi:
'Teeppäs nyt turkki!' Tästä syntyi koiran ja oravan välille ikuinen viha,
niin että kun koira vain oravan näkee, niin heti ajaa sen puuhun ja jo
ennen haukkumistaan vinkuu ja vikisee: 'Neulanrosvo, neulanrosvo!'
»Mitäs ollakaan. Sai sitten tämä orava kauniit poikaset, ihan

yhdeksän poikaa sai, ja niitä pesässään korkean kuusen kyljessä
keinutteli, hoiteli ja soudatteli. Tulipa sitten harmajan nahan aika ja
orava sekä poikaset, jotka eivät enää pesässään maanneet, vaan
siinä vaiheilla vain hyppivät, näkivät miehen tulevan koirineen. Jo
osuu mies huomaamaan pesän, sanoo koiralleen: 'Taitaa olla pesä',
keikkailee puuta kirveellä: 'Tyhjä on', sanoo, ’ei ole mitään'. Silloinpa
ukkovaarinikin heräilee, kun kuulee miehen puhetta, ja käskee:
'Menkääpäs katsomaan, mittyiset on siellä ampujat, mittyiset
haukkujat!' Pojat menevät, katsovat tarkkaan ja palaavat vaarille
sanomaan: 'Hyvin on hyvä koira, sileä on ja lihava kuin mikähän
vain, karvat kiiltävät.' — 'Entä mies?’ kysyy orava. 'Mies on', sanovat
pojat, 'hyvin hyvässä sovassa, ja pyssy on hyvin kaunis, vaskella
puolitiehen silattu.' — 'Pankaa maata vain', määrää silloin vanha
orava, 'ei tule mitään.' Ja niine hyvineenhän mies siitä ulkousikin.
»Makaa sitten orava makeasti poikineen sen yön, kun jo

seuraavana päivänä taaskin ilmestyy mies puun tyvelle ja koira siinä
vierellä räyskää. Keikkailee mies puuta ja arvelee, että pitäisi oravan
pesä saada sieltä käsiin. Orava-ukko kuitenkin vain rauhassa
venytteleksen, haukottelee ja sanoo pojilleen: 'Menkääpäs
katsomaan, mittyiset on siellä ampujat, mittyiset haukkujat.' Menevät
pojat, katsovat, ja törmäävät sanomaan: 'Lihava on koira, hyvin
kaunis, ja mieskin on hyvässä sovassa, vaikka ei moinen kuin eilen,
ja pyssykin on hyvä, vaikka ei niin kaunis kuin eilen, ei ole vaskea
yhtään.— 'Maatkaa edelleen', urahti silloin ukkovaari, 'ei tule mitään'.
Ja eikös lähtenytkin mies siitä tiehensä, hylännyt puuta! Kintaansa
vain unohti puun juurelle.
»Maataan kolmanteen päivään ja aamun tullen saapuu taas puun
juurelle koira, haukkuu, räyskäilee karulla äänellä kuin väsynyt
ainakin. Hetipä havahtuukin siitä itse ukko-orava, pörhistelee
korviansa, pyörittelee silmiänsä ja määrää: 'Menkää, veikkoset pojat,
katsomaan, mittyiset ovat siellä ampujat, mittyiset haukkujat!' Pojat
menevät ja siinä samassa tulevat takaisin kertomaan: 'Hyvin on
huono koira, karva takussa riippuu, nälkään on kuolemassa',
sanovat, 'ja mieskin on huono semmoinen, että on nuttu kaikki
repeillyt vyöhön saakka, ja pyssyssä ei ole puuta ensinkään, tyhjä
piippu on vain pahanpäiväinen!' Silloinpa ukkovaari säikähti kovasti
ja huusi pojilleen: 'Voi juojat! Nyt se kumma tulee, kaikki korvet se
tutkii, kunhan ei vain käsiinsä saisi! Nyt silitkää tiehenne, minne vain
kerennette!'
»Ei kuitenkaan tavoittanut mies ukkovaariani, minkä lienee pojista

tavoittanut, sitä en tiedä. Ukko-orava palasi entiselle pesälleen ja
kun hän nyt katselee omaisuuttaan, on hänellä kaksi mieleistä kalua:
neula ja kinnas. Hän niitä hyvänä pitää ja ihan veljikseen puhuttelee,
ja veljeksinä aivan siinä pesässä ruvetaankin elämään. Alkaa heillä
sitten kerta saalista himoittua. Silloin päätetään lähteä miehissä
saaliin etsintään. Kävellään! siitä kukin omalle haaralleen ja määrä
on huutaa toisille, jos kuka sattuu saaliin löytämään.
»Kuljetaan siinä niin ja etsitään saalista, niin mitäs ollakaan: jo

rupeaa kuulumaan metsästä neulan kimeä, piipitys, jotta ihan näin:
»Kiidä, kiidä kintahaisein,

Oiottele, oravaisein,
Löyti neula löytösen,
Saipa neula saalihin.
»Riemastutaan siitä kovasti kinnas ja orava sekä juostaan
touhuissansa neulan saalista katsomaan. Tullaan paikalle,
katsotaan, kysytään: 'Missä saalis?' Neula osoittaa tyytyväisen
vesirapakkoa: 'Ka tuossa!' — 'Ka tämäkö sinun saaliisi olikin!'
ärjäisevät siinä toiset toverukset, karkaavat neulan niskaan ja
pieksävät hänet pahanpäiväiseksi, että tämmöinen tällä muka oli
saalis ja siitä oikein huudon nosti. Hukkaan oli mennyt se päivä ja
noloina palataan pesälle taas nukkumaan.
»No mitäpä siitä! Seuraavana päivänä lähdetään paremmalla

onnella ja kävellään kukin haaralleen saaliin etsintään. Eivät ole
kinnas ja orava vielä kovinkaan kauas ehtineet, kun kuulevat jo
neulan kovalla äänellä heitä kutsuvan. Ihan muka kiitää pitäisi
kintaan ja oikotietä saapua oravan, kun on hän, neula, löytänyt
saaliin taas. Epäilevät orava ja kinnas koko asiaa, mutta eivät
kuitenkaan malta, vaan tulla huristavat hengästyneinä paikalle, että
missä saalis. Voitonriemuisena taas neula osoittaa heille saalistaan,
tervaskantoa, jonka muka oli löytänyt. Nuolena siitä kinnas ja orava
karkaavat neulan niskaan, haukkuvat, että vai tällainen sinulla taas
on saalis, ja antavat neula parkaa selkään minkä suinkin jaksavat.
Suivautuneina koko saaliin etsintään lähtevät he sitten kaikin kotiin
harmissaan makaamaan.
»Nukutaan taas yö, virkistytään eikä enää malteta, vaan päätetään

uudelleen lähteä saalista etsimään, toivossa, että vihdoinkin parempi
onni riipaisisi. Kävellään, kävellään, erotaan toisistaan kukin omalle
haaralleen. Neula terävänä mennä puikkii ruohokossa, kuuntelee ja
katselee, niin jopas huomaakin: peurat järvessä syövät kortteikossa.
Mitäs ollakaan. Neula mennä puikkii, puikkii, järveen luikaisee, siellä
itsensä kortteen solmuun pistältää ja odottelee. Jopas tulee peura,
hamuilee kortteita suuhunsa, kunnes nielaiseekin neulan vatsaansa.

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Rental Property, Royalties, and Income from Flow-Through Entities

True / False Questions

1. Rental income is generally reported on Schedule C.

2. Capital improvements on rental properties may be deducted in the current year.

3. A security deposit for a rental property is not reported as income.

(1) primarily rental,

14. A royalty is a payment for the right to use intangible property.

16. Generally, a taxpayer uses Schedule C to report royalty income.

17. Royalties resulting from a non-trade or non-business activity should be reported on a

21. Flow-through entities file "informational returns."

23. Rental activities by definition are passive activities.

26. Rental income may be reported on a Schedule A or a Schedule C.

(1) primarily rental; or

36. A taxpayer may use a Schedule C or a Schedule E to report royalty income.

Multiple Choice Questions

A. IRC section 179 may be claimed.

A. Travel related to the property

A. $3,200 net loss

A. Should be reported on Schedule E

A. Report net income of $4,500

A. It must be reported on Schedule C only

71. Which of the following entity(ies) is(are) considered flow-through?

A. $100,000 income on Schedule E; $50,000 investment expense on Schedule A

A. $100,000 income on Schedule E; $1,000 short-term capital gain on Schedule D

A. $68,500 income on Schedule E; $16,000 investment expense on Schedule D

A. Generally, rental activities are reported on Schedule E.

A. The amount should be reported on Schedule E.

A. Report net income of $4,500 on Schedule E.

A. none of the rental income needs to be reported as part of gross income.

98. Royalties can NOT be earned from which of the following?

100.Jeremiah is a full-time professor of psychology at the University of Washington and an author

101.Which of the following is not considered a flow-through entity?

A. Limited liability company.

A. $192,500 on Schedule E; $40,000 on Schedule A.

103.Which of the following entity(ies) is(are) considered flow-through entity(ies)?

A. $41,000 income on Schedule E; $16,000 investment expense on Schedule A.

Short Answer Questions

114.Explain what is considered personal use of a rental property.

True / False Questions

1. Rental income is generally reported on Schedule C.

Taxpayers report these items on Schedule E of Form 1040.

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2. Capital improvements on rental properties may be deducted in the current year.

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3. A security deposit for a rental property is not reported as income.

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(1) primarily rental,

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