Rent collected in one year for rental period begining Following year

DSRB

Hello. We secured a long term renter with a security deposit and first month’s rent. They paid in 2021. But the rental period begins in 2022. How do I count the rental income? Is it counted in 2021 or 2022? I don’t want to get hit with unnecessary taxes in one year if I don’t have to. And if 2022 do I just simply edit the date of the imported transaction from my bank account? Or is it more complicated? I am a bookkeeping novice so step by step instructions are greatly appreciated!

Thank you!

Mikeg

@DSRB,
Depends on your method of accounting, cash or accrual. If you are doing this through your personal return i.e. Form 1040 as a single member LLC or personally owned, then you are on the cash basis of accounting. Therefore, you recognize income when constructively received. Since you received the cash in 2021, the income would recognized. If the property is owned by a separate entity i.e. partnership or S-Corp, C Corp then you can elect accrual. If so, the receipt would be a liability called Deferred Revenue. In 2022 you would need to do a journal entry to recognize the revenue.

DSRB

We are a partnership LLC. We’ve had a similar issue with when our management company reports income on its 1098 to us. For short term renters that stayed in Dec 2021 they report the income as 2021 even though they don’t actually pay us to our bank acct until 2022. Our tax guy said to count it in the year on our 1098 to keep it simple (even if it doesn’t match our bank account). So to maintain consistency how would this apply to the forward-paid rent question?? And how do I record it? Thanks so much!

Mikeg

@DSRB,
You would follow your method of accounting that has been elected on your tax return. Most taxpayers are cash basis. That would require you to recognize the income in 2021 since that is when you received.

DSRB

@Mikeg thanks so much! Makes sense. Thanks to all!!