Rental income glitch

Assuming your rental business is operating on a calendar year (most common), you report the income in the year you actually receive the cash. So, yes, it would be 2007, in this instance. Bill

I'll vote for 2007.

ChEAr$, Harlan Lunsford, EA n LA

If you are using accrual accounting, 2006.

If you are a cash-basis tax-payer, you pay taxes based on when you received the revenue.

Did the tenant send the check directly to the bank? If yes, then it is 2007 income (period).

If no, then if the check is NOT on your deposit slip and you did not lose the check, it is 2007 income.

Otherwise it is 2006 income.

Dick

By the way, I use cash accounting for this activity.

As intuitive as it may seem, unfortunately the answer is that you received the rent payment in 2006 when you received the original check; the fact that it did not clear the bank (i.e., that it somehow got lost after you received it) in

If you are a cash taxpayer, which most of us are, you report income when you receive it. In this case it is 2007. Missy Doyle

That was my reaction too. But it also seems to me that the OP is entitled to an offsetting deduction for 2006 when it turned out the check never made it into his account. In that case he would also take it into income in 2007.

Stu

Most interesting. So far 3 tax professionals say 2007 and 1 says 2006. No wonder we laypersons get confused.

I tend to go along with the 2006, however. A check is a negotiable instrument. It has been discussed here before that if you receive a check in December but hold on to it and don't cash it until January, you still must count it for the tax year received. You can't shift income from one year to the next simply by failing to cash the check. I don't see much difference in this. There is no argument by the OP that the check was in fact received in 2006. Just because the check was then subsequently lost shouldn't shift the income to the next year anymore then if the OP intentionally destroyed the check and then claimed it to be lost as a method to shift income to the next year. If losing the check was the test then I could shift a lot of my income to the next (better tax advantage) year just by selectively 'losing' checks and asking the insurer for a new check in the new year.

--

-Ernie-

"He immediately provided a replacement check."

I was tempted to say "What a good tenant" but then I changed it to "What an okay tenant." A really good tenant would let you know promptly that his check had not cleared and *then* replace it.

If the tenant actually issued the check in 2006, and he received it then, it's 2006 income (you can't defer income merely by not cashing a check, or even by losing it; there's still contructive receipt). However, if the tenant forgot to send it and he didn't notice until this year, he never had the check in 2006, and it's 2007 income. Seth

Hmmm... So answering the question /isn't/ as simple as I had thought. I also considered that "constructive receipt" might be an issue. I actually have a copy of the deposit slip I sent to the bank, which tends to prove that I DID receive the check in 2006. I sort of doubt that the IRS is ever likely to look into this, and as it happens, it probably doesn't affect my 2006 refund/payment. In fact, it probably won't affect my 2007 refund/payment, either. This is more a question of which way to report the matter is more accurate. My slight preference is for reporting the income in 2007, since the bank records will reflect the state of the situation, so I wouldn't have to remember that the extra deposit has already been accounted for. Thanks for the opinions, folks. I'm leaning toward taking GrandMarquis99's advice, i.e., "constructive receipt" in

Constructive receipt is a fiction created to allow taxation of money you could have received during the tax year but didn't due to your own actions. Here you actually received the check and deposited it. So constructive receipt shouldn't play a part.

I think that would be fine - that's the year you actually received the funds, despite all your efforts to receive it in 2006. Stu