Third Party Rent Collector

[jack73]

I use a third party to collect rent online.  They hold the money for 5 days and then deposit it into my account.  If they receive payment on Dec 27th, and hold it the 5 days, then deposit it into my account in January, is this considered income for the current year (of Jan) or prior year (of Dec).  Technically it was not "available" to me until January.  I know if I receive a check in Dec and don't deposit it until January, then it's income in the prior year (of Dec), because it was "available" to me, but the third party situation seems different.

Thanks in advance!

[MarilynG1]

You are correct that Rent is considered income in the year you received it, not the year it applies to.  

Click this link for more info on Rental Income. 

[jack73]

So the third party collector is considered "me" in this scenario, even though I don't have access to the funds until they deliver it to me.  Seems a little. Like considering the postmark date on a mailed check, rather than when it arrived. 

[AmeliesUncle · Accepted solution]

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@jack73 wrote:

So the third party collector is considered "me" in this scenario, 

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Yes, they are your "agent" for tax purposes.  It is considered as income when you or your agent receives the income.

[Carl]

Terminology matters here. You refer to the entity that receives the rent as your "agent", and not as something else, such as a rental property management company that you pay.

Your agent acts on your behalf and is therefore identified as being "you" when it comes to taxes. So when your agent receives the rent, it's treated exactly the same as if "you personally" received it on that same date. The income is therefore reportable in the tax year it is received, weather it's your agent that receives it first, or you.

Now if you pay a rental property management business to manage the property for you, that would mean that you do "not" actively participate in the management of that property. In other words, the property management entity makes all management decisions for you, on your behalf and in your best interest. Things like determining who qualifies to actually rent the property to you, as well as taking care of repairs and any other maintenance on the property needed. With this scenario, the term called "constructive receipt" comes into play. The money is reported in the tax year you have control of that money.

So if the management company receives the payment on Dec 30th, but you don't have actual access to and control of that money until Jan 2nd of the next tax year, then it's reported as income on your tax return for that next tax year, and not the tax year the management company received the money.

Now let's sayf it's a case of where the management company mailed you a check that was dated say, Dec 30th, and you didn't receive that check until Jan 2nd, the management company lost their control over that money on Dec 30th - the date of the check and the day they dropped it into the mailbox. Therefore, you would have "constructive receipt" on Dec 30th of that prior tax year and where therefore include it in your income for that prior tax year.  In this scenario the management company would be correct in including that amount in any 1099-MISC they issued to you, reporting rental income paid to you in that prior tax year.

[jack73]

Thank you @Carl .  Always a very thorough answer!

[M-MTax]

If you like Carl's answer that's OK but one part of it is wrong. You can "actively participate" EVEN IF you have a property manager or use a management company because it's a REAL low standard......all you have to do is make some basic decisions AND you can tell your manager to do whatever you say and your manager must follow your instructions. 

Read this https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/if-we-have-a-property...

and from pub 925.....Active participation isn’t the same as material participation (defined later). Active participation is a less stringent standard than material participation. For example, you may be treated as actively participating if you make management decisions in a significant and bona fide sense. Management decisions that count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions.