How much rental income must Kai report in the first year from his lease agreement?

In determining the rental income that Kai must report in the first year from his lease agreement, it is essential to recognize that all rental income received from leasing a property is considered taxable income and must be reported on his tax return.

If the lease agreement stipulates that Kai will receive $10,000 in rental payments during the first year, this amount must be fully reported as rental income, regardless of any expenses associated with maintaining the property or any potential losses incurred in that year. The IRS requires property owners to report their income on a cash basis, meaning that rental income is reported in the year it is actually received, not when it is due or obligated.

Therefore, if the correct answer indicates that Kai must report $10,000, this is indeed the amount of rental income he has received and is required to report for tax purposes in the first year of the lease agreement.