Rent deferral accounting

[Adreitz]

We own an apartment that we are renting out. Our tenants have had significant financial difficulties since the start of the pandemic and in 2022 we allowed them to defer four months' rent until they are able to get back on their feet. They have not yet repaid this rent. The normal rental price would probably be considered fair.

How should we respond when TurboTax asks if the property was always rented at a fair rental price? What are the consequences of saying No to this question?

Should we only consider the actual rent received in 2022 as income and not the deferred rent?

[JulieS · Accepted solution]

Yes, you should report the rent you received and not include the amount that was not received. 

The question about fair market rent is based on your agreed amount of rent and you don't need to change your answer because you didn't actually receive the agreed amount of rent. 

If the agreed amount of rent is a fair market rent in your area, you can answer that question Yes. 

The consequence of answering No, is that you would lose some of your deductions. This is designed to prevent people from renting below market to friends and relatives to generate a tax loss. 

Hopefully you will collect the deferred rent this year, or soon after, and you will need to report that in the year you receive it.