What is Considered Rental Income?

As landlords there are several different ways tenants may choose to pay rent, they may pay monthly, yearly, or perhaps all at once. How do advance payments count when it comes to filing taxes? Do security deposits count under income or are they filed differently? These questions can be difficult to answer for new or experienced landlords, we’ll examine them shortly here.

First, let’s consider advance rent. Advance rent is any amount of rent you receive before the period that it covers. You must include any amount that is received in that year’s tax form regardless if the rent is covered in that year or not. For instance, if you have signed a tenant to a two year lease and the tenant pays all of the rent at the signing of the lease, the landlord must count all of the rent in the first year’s tax return.

Next, let’s examine security deposits as they can be counted differently than income. If a security deposit is used as a final payment of rent (common with apartment buildings) that security deposit must be counted on the tax return. However, if the landlord has the intention of returning the security deposit then the landlord may not include the deposit in the yearly tax filing. This changes if any portion of the security deposit is kept, any portion retained must be counted in the annual tax filing.

If you are a landlord and need help determining what payments by tenants must be included in your yearly taxes feel free to contact us at the Center for Financial, Legal & Tax Services, Inc.