Rental income is any payment received for the use or occupation of property. Rental
income is generally included in gross income when actually or constructively
received. Cash basis taxpayers report income in the year received, regardless of when
it was earned. Expenses of renting property can be deducted from gross rental income.
Rental expenses are generally deducted by cash basis taxpayers in the year paid.
Advance rent is any amount received before the period that it covers. Include advance
rent in rental income in the year received, regardless of the period covered or the
accounting method used.
Do not include a security deposit in income when received if it is to be returned to
the tenant at the end of the lease. If part or all of the security deposit is
retained during any year because the tenant does not live up to the terms of the
lease, include the amount retained in income for that year. If an amount called a
security deposit is to be used as a final payment of rent, it is advance rent.
Include it in income when received.
If the tenant pays any expenses that are the landlord's obligations, the payments are
rental income and must be included in income. These expenses may be deducted if they
are otherwise deductible rental expenses. Property or services received in lieu of
rent are reportable income. Include the fair market value of the property or services
in rental income. Services at an agreed upon or specified price are assumed to be at
fair market value unless there is evidence to the contrary.
Personal use of a vacation home or other rental property requires that the expenses be
allocated between the personal and rental use. If the rental expenses exceed rental
income, the rental expenses will be limited.
This publication is distributed with the understanding that the author, publisher and
distributor are not rendering legal, accounting or other professional advice or
opinions on specific facts or matters, and, accordingly, assume no liability
whatsoever in connection with its use. The information contained in this newsletter
was not intended or written to be used and cannot be used for the purpose of (1)
avoiding tax-related penalties prescribed by the Internal Revenue Code or (2)
promoting or marketing any tax-related matter addressed herein. © 2015