Tax Research

Gross income is commonly defined as the amount of a company's or a person's income before all deductions or any taxpayer’s income, except that which is specifically excluded by the Internal Revenue Code, before taking deductions or taxes into account. Section 61 of the Internal Revenue Code (Code) defines "gross income" as "all income from whatever source derived. Generally, you must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use or occupation of property. In addition to amounts you receive as normal rental payments, there are other amounts that may be rental income. When you report rental income on your tax return generally depends on whether you are a cash basis taxpayer or use an accrual method. Most individual taxpayers use the cash method.   So, are improvements and additions to rental property paid for by lessee considered gross income?
There are several types of rental income.   The most common types of rental income are advance rent, canceling a lease, expenses paid by tenant, property or services, and security deposits. Advance rent is any amount you receive before the period that it covers. Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use.
On March 18, 2009, you signed a 10-year lease to rent your property. During 2009, you received $9,600 for the first year's rent and $9,600 as rent for the last year of the lease. You must include $19,200 in your rental income in the first year.
If your tenant pays you to cancel a lease, the amount you receive is rent. Include the payment in your income in the year you receive it regardless of your method of accounting. If your tenant pays any of your expenses, those payments are rental income. Because you are including this amount in income, you can also deduct the expenses if they are deductible rental expenses.
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