As a landlord, your gross rental income is often more than just the monthly rent you receive from tenants. A gross receipts definition includes any income you receive from your rental properties, without any deductions for your landlord expenses.
Types of Gross Receipts
Besides rental income, your gross receipts may include funds received for advance rent, tenant-paid expenses, an income tax refund or services performed by the tenant in lieu of rent. As an example of the latter, the IRS uses a tenant who is a professional painter who arranges to paint your rental property in lieu of two months' rent. While you are not receiving a check from the tenant for these two months, you must still include in your gross receipts the value of the work performed. However, you can use that same amount as a rental expense for the painting, according to the IRS.
If a tenant pays a bill they are not required to pay under the terms of the lease, such as the water bill, and deducts it from the rent, you are still required to include the amount deducted as part of your gross receipts. The same applies if the tenant is forced to pay for an emergency repair and then deducts it from the rent. Under normal circumstances, repairs require landlord approval, but if the heating system breaks down in the middle of winter and the landlord is away on vacation, such repairs are considered emergencies. If you charge a tenant penalties as per the lease agreement because they are in some form of violation, such as late payments, you must report the penalty funds as part of your gross receipts.
Security Deposits and Gross Receipts
When it comes to security deposits, they may or may not be defined as gross receipts. If you plan to return the amount, plus interest, when the tenant leaves at the end of the lease, it is not considered part of your rental gross receipts by the IRS. However, if you use the security deposit to make repairs caused by your tenant, or you agree to allow the security deposit to make up a tenant’s final rent payment, then it is considered part of your gross receipts.
Taxes on Short-Term Rentals
With the popularity of short-term home rentals exploding due to Airbnb and other home-sharing networks, many people are becoming landlords without realizing it. Just because you’re renting out your property for short stays doesn’t mean you aren’t liable for collecting lodging taxes, which vary according to state, county and municipal laws. The definition of short-term also varies by state, with most using a standard of less than 30 days but with some considering 90 days or longer rentals as short-term. These often hefty taxes are based on your gross rental income. For example, the town of Ocean View, Delaware charges a gross receipts tax of 5 percent on all rental income, and the amount is payable twice annually.
IRS Rental Income
The IRS requires you to report rental income, including your gross receipts, in the year in which you receive it on Schedule E of Form 1040. That means if a tenant pays the January rent in December of the previous year, that is part of your rental income for the previous year even if it was not due until the next year. By the same token, expenses for your rental property are also deductible in the year in which they are paid.
As for dwelling units you rent out but also use yourself some part of the time, such as a vacation home or a short-term rental of your primary residence, the IRS requires you to divide your expenses between your personal use and the rental use.
