Free Tax Course
 

Rental Income

What is rental income? (definition of rental income)

Rental income is any amount you receive for the use or occupation of property. In addition to normal rent payments, there are other amounts that may be rental income. These include:

  • Advance rent
  • Payment for canceling a lease
  • Payment of expenses by a tenant
  • Fair market value of property or services
  • Portion of a security deposited you do not return to a tenant
  • Security deposit intended to be the last month's rent
What is advance rent?

Advance rent is any amount you receive before the period that it covers. Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use.

Payment to cancel lease

If your tenant pays you to cancel a lease, the payment is considered rent. Include the payment in your income in the year you receive it regardless of your accounting method.

If your tenant pays any of your expenses, such as property tax payment, the payments are considered income and must be included in your gross income. If the expenses are deductible you can deduct them from your gross rental income.

The fair market value of property or services provided by your tenant as rent instead of money must be included in your rental income. If the property or services are provided at an agreed upon price, the price is the fair market value unless there is evidence to the contrary.

If you keep all or part of a security deposit because your tenant does not live up to the terms of the lease, you must include this amount in your rental income for that year. Do no include amounts that you plan to return to he tenant at the end of the lease period. If an amount received as a security deposit is to be used as a final rent payment, it is advance rent. Include it in your income when you receive it.


 Free-Tax-Course

 

Looking for more IRS Deductions?