7903 / When is deferred rental income included in income?

Cash basis taxpayers generally include rental payments in income in the taxable year in which they are actually or constructively received. Leasing programs have sometimes used deferred or stepped rent schedules in order to delay receipt of income until later years of the program, with the effect of increasing loss deductions in early years. However, lessors under certain deferred or stepped payment lease agreements entered into after June 8, 1984, are required to report rental income as it accrues, as well as interest on rent accrued but unpaid.¹ Agreements are subject to this rule if at least one amount allocable to the use of the property during a calendar year is to be paid after the close of the following calendar year, or if there are increases in the amount to be paid as rent under the agreement. This accrual requirement does not apply if the aggregate value of the money and other property received and to be received for use of the property is $250,000 or less.² These rules are discussed in further detail in Q 7831.

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1. IRC § 467(a).

2. IRC § 467(d).

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