Back Rent Lump Payment For Multiple Past Years

[TangledMess]

In 2022, a tenant was approved for a state aid program.  I was paid a lump sum for back rents from 2019, 2020, 2021 and 2022.  All those years, I simply reported the real (partial) rents they had paid.  In 2022, does 100% count as income in 2022? Or is there a way to spread it over the years it was due? 

[Mike9241 · Accepted solution]

unless you used the accrual method in prior years to report the unpaid rents as income, extremely doubtful, it's all income in the year received.

[Carl]

does 100% count as income in 2022?

Yes.

Or is there a way to spread it over the years it was due?

Unfortunately, no. However, if you have any PAL carry overs from prior years, which is perfectly possible, most if not all of the "excess" income could very well be offset by those losses. When you have PAL carry overs they are deductible against other passive rental income if you have the taxable passive rental income to deduct them from. For 2022, you will have that "extra" rental income paid to you for prior tax years.

It's also possible you won't have any PAL carry over losses. Starting with the Tax Cuts and Jobs Act of 2018, up to $25,000 of PAL carry overs can be deducted from other ordinary income if you meet certain income threshold requirements. So don't be surprised if the full amount or portion thereof is taxable for 2022. It is what it is. Depending on the numbers, it's also possible you could be bumped into the next higher tax bracket. But again, it is what it is.