Jerry, a general contractor by trade, is a tenant of Montgomery Apartments. In exchange for four months rent ($900/month), Jerry provided the following items and services for Paul, the owner of the apartments:
Paint and miscellaneous supplies for the apartments $ 700
Labor for painting and miscellaneous repairs 1,000
Labor and supplies for paving the apartment parking area 1,900
How should Paul treat this transaction on his 2008 Schedule E?
a. Rental income of $3,600 and rental expenses of $3,600.
b. No rental income or rental expenses are to be reflected on the Schedule E because the net effect is 0.
c. Rental income of $3,600 and depreciation computed on the capital expenditures of $3,600.