rental income

Forum|Forum|1 year ago
February 9, 2025
1 reply
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Lease to own - If I receive rental income of 1000 a month and 500 goes towards the down payment. I need to enter the total amount of 1000 a month as rental income.

Once the renter is ready to purchase. Since I filed the whole 1000 as rental income. Will I have to pay a capital gain on that money that I rec'd from the renter as a down payment.

DianeW777

It depends on exactly how your agreement is set up. If there is no agreement at all then it's all rental income now and will not be considered as 'deposit' funds.

If they are in a rental situation, no land contract or seller financed mortgage and/or no least to own agreement in place any amount received will be designated as rental income. The portion that is considered a deposit is not income if you do not have an unrestricted right to it until the property sale takes place or is disregarded entirely. In other words it is put aside as a deposit.

If the sale is completed in the future this will be part of the sales proceeds.

The other consideration is whether you are actually in a 'rent for profit' situation. This is best explained below.

Not for Profit Rental: The not-for-profit rental income is reported without the ability to take expenses and can be found in IRS Publication 527.

This is important to consider because at $500 rent per month it may be considered depending on the fair rental value (FRV) in your area for the same type of home.

Lastly, if you are taking any depreciation on the home because you consider this a 'for profit' rental, this will be recaptured when it is sold and TurboTax will help you with that at the time.

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