Rental Income You generally must include in your gross income all amounts youreceive as rent. Rental income is any payment you receive for the useor occupation of property. In addition to amounts you receive asnormal rent payments, there are other amounts that may be rentalincome. When to report.Report rental income on your return for the year you actually orconstructively receive it (if you are a cash basis taxpayer). You areconsidered to constructively receive income when it is made availableto you, for example, by being credited to your bank account. For more information about when you constructively receive income,see Publication 538, Accounting Periods and Methods. Advance rent. Advance rent is any amount you receive before the period that itcovers. Include advance rent in your rental income in the year youreceive it regardless of the period covered or the method ofaccounting you use. Example.You sign a 10-year lease to rent your property. In the first year,you receive $5,000 for the first year's rent and $5,000 as rent forthe last year of the lease. You must include $10,000 in your income inthe first year. Security deposits. Do not include a securitydeposit in your income when you receive it if you plan to return it toyour tenant at the end of the lease. But if you keep part or all ofthe security deposit during any year because your tenant does not liveup to the terms of the lease, include the amount you keep in yourincome in that year. If an amount called a security deposit is to be used as a finalpayment of rent, it is advance rent. Include it in your income whenyou receive it. Payment for canceling a lease. If your tenant pays you to cancel a lease, the amount you receiveis rent. Include the payment in your income in the year you receive itregardless of your method of accounting. Expenses paid by tenant.If your tenant pays any of your expenses, the payments are rentalincome. You must include them in your income. You can deduct theexpenses if they are deductible rental expenses. See RentalExpenses, later, for more information. Example 1.The water and sewage bill for your rental property is mailed to theproperty. Under the terms of the lease, your tenant does not have topay this bill. Your tenant pays the bill and deducts it from thenormal rent payment. Zakopane hotel roomsInclude in your rental income both the net amount of the rentpayment and the amount the tenant paid for the utility bill. You caninclude the amount of the bill as a rental expense. Example 2.Reservacion de alojamiento StuttgartWhile you are out of town, the furnace in your rental propertystops working. Your tenant pays for the necessary repairs and deductsthe repair bill from the rent payment. Include in your rental income both the net amount of the rentpayment and the amount the tenant paid for the repairs. You caninclude the cost of the repairs as a rental expense. Property or services. If you receive property or services, instead of money, as rent,include the fair market value of the property or services in yourrental income. If the services are provided at an agreed upon or specified price,that price is the fair market value unless there is evidence to thecontrary. Example.Your tenant is a painter. He offers to paint your rental propertyinstead of paying 2 months' rent. You accept his offer. Include in your rental income the amount the tenant would have paidfor 2 months' rent. You can include that same amount as a rentalexpense for painting your property. Lease with option to buy.If the rental agreement gives the tenant the right to buy yourrental property, the payments you receive under the agreement aregenerally rental income. If, however, your tenant exercises the rightto buy the property, the payments you receive for the period after thedate of sale are part of the selling price. Rental of property also used as a home.If you rent property that you also use as your home and you rent itfor fewer than 15 days during the tax year, do not include the rentyou receive in your gross income. You cannot deduct rental expenses.However, you can include on Schedule A (Form 1040) the interest,taxes, and casualty and theft losses that are allowed for nonrentalproperty. See Personal Use of Vacation Home or Dwelling Unit,later. Part interest.If you own a part interest in rental property, you must report yourpart of the rental income from the property.