Deferred revenue - Rent advance

[seenammamathew]

Any one have experience for advance rental income reporting on taxes? rental income received for the 2019 June -2020 May in advance. One professional stated I can report the income for 2019 and on the expenses I can place Jan-May part of income as deferred revenue ( looks like accural method ). Does anyone have more experience regarding this. Thank you for your help

[cskcpa20]

As an individual you are a cash basis taxpayer - income is recognized when received and expenses when actually paid.  You're right - an accrual method is used to more closely match revenue and expenses. IF you used an accrual method you would report the income when earned. However, accrual method is limited to who can use it. 

If you report the activity on Sch C - Sole Proprietor/Self Employed business you might have the ability to change from one method (cash) to another (accrual). But you have to file a Form 3115 and do a number of computations and it's a pain in the butt 🙂 However, just to be clear, you can't just up and decide to use the accrual method on a whim. It has to be approved (but often this is automatic under certain circumstances) and the timing of the election is very specific. 

Ordinarily rental properties are shown on Sch E and I am not aware of being able to use the accrual method on a Sch E. So you would have to report all of it when it is received. You could prepay some of the expenses to offset the inclusion of the income. 

[seenammamathew]

what he said is report the income on schedule E, Then report deferred revenue on expense to offset the expense for 2020. Just wondering if any one else used this method before. 

Thanks again for your reply  

[Carl]

I've never heard of anyone using the accrual method on SCH E rental income. In fact, I don't think its possible; at least not with the TurboTax program.

Generally, rental income is claimed as such in the tax year it is received, and it doesn't matter what tax year it's for. Likewise rental expenses are claimed/reported in the tax year they are paid, and it doesn't matter what tax year is paid for. (property taxes would be an example of this, but a bad example since other things come into play on that specific expense.)

[Anonymous]

you can not expense the portion of the rent received in advance

Rental income is any payment received or accrued for occupancy of real estate or the use of personal 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. 

Advance rent is any amount received before the period that it covers. Landlords are required to include advance rent in rental income in the year received, regardless of the period covered or the accounting method used by the taxpayer.