Jonas owns a building that he leases to dipper, inc., for $5,000 per month. the owner of dipper has been complaining about the condition of the restrooms and has proposed making improvements that will cost $24,000. dipper's owner is willing to pay to have the improvements made if jonas will reduce the monthly rent on the building to $4,000 for one year. as preparation for a letter to be drafted to jonas, complete the statements that follow which explain the tax effects of this proposal. improvements made by a lessee to property are not income to the lessor until the lessor realizes the value of the improvements. however, if the improvements are made in lieu of rental payments, the improvements must be included in the gross income of the lessor as rental income. in this case, the improvements attributable to the $ 1,000 monthly rent reduction will have to be included in jonas' gross income because they are made in lieu of the normal rental payment. jonas will have $ of rental income under the proposal. the remaining cost of the improvements to the property will not be recognized until jonas realizes the value of the improvements through sale or other taxable disposition of the property. the $ 12,000 rental reduction improvements are capitalized and included in jonas' basis in the building.