O rents a house to L. L pays annual rent of $15,000 and also pays O’s mortgage of $1,000 per month; L adds a pool improving the property by $8,000. What is O’s rental income for the year?

• A. $15,000
• B. $19,000
• C. $23,000
• D. $27,000

Answer: (D)

The key idea is that rental income includes all compensation the landlord receives for the use of the property, not just the stated rent. So, in addition to the annual rent, any payments the tenant makes that are aimed at covering the landlord’s obligations related to the property count as rental income.

Here, the tenant pays 15,000 in rent and also pays the landlord’s mortgage of 1,000 per month, totaling 12,000 for the year. Together, these cash amounts add up to 27,000 of rental income for the year. The pool improvement of 8,000 is an in-kind contribution that increases the property’s value, but it does not add to cash rental income.