Rental conundrum

[Catherine]

Taxpayer bought a condo in 2014 to be mixed-use.  However, in 2014 it was only rented for three days.  OK; that comes under the "personal use" category so mortgage interest and RE taxes go on Sch A, and no expenses or income on Sch E.  Phew.

However, that three-day rental in 2014 started on Dec 29th and only ended on Jan 14th of 2015.  In 2015, we definitely have mixed-use,  with about 60 total days in rental and about 30 total personal use days.  I know the allocation methods for expense; that part is no problem.

What do I do about the *income* for the January 2015 portion?  It was *paid* in 2014 when we don't report income but it was *for* a 2015 rental.  Do I include it?  Or not?

[Gail in Virginia]

My gut reaction is that a cash basis taxpayer reports income in the year in which it is received unless to do so would result in a material difference.  I don't know how much money we are talking about for two weeks - in some resort areas that could be really material. 

[Max W]

If it were a business, it could be treated as deferred income and pro-rated accordingly.  However, It is a prepaid vacation rental, which can't be considered a business. So, it seems that it should be reported in 2014.     

[Roberts]

This has been argued on here in similar fashion multiple times. Some demand the income be reported when received regardless of any other considerations. Others look at it in more of a real world scenario of matching income / expenses and maintaining a pattern.

I'd pro-rate the income and expenses to match it up with when earned.

 

[BulldogTom]

I go with cash basis taxpayer.  You don't have income until received.  I would put it in the year it hit the checking account.  Cause if the audit is for 2015, and the cash is in 2015, but the income is in 2014 and 2014 is a closed year, the auditor is likely to take the position I just did.

Tom
Newark, CA

[Terry D EA]

>>>>>I go with cash basis taxpayer.  You don't have income until received.  I would put it in the year it hit the checking account.<<<<< I would take the same position as Tom.