Rental Income

Advances

If you receive security deposits and other advances, and you have an unrestricted right to these payments, you must report them in the year received.

Payments in Lieu of Rent

If a tenant pays expenses on your behalf in lieu of paying you rent, such payments to third parties are included in your business income as rental income.

Cancellation or Bonus Payments

If your tenant pays to get out of a lease or to secure a lease (bonus payment), such payments are income to the recipient..

Bartering Income

If you exchange your goods or services for property, you're involved in bartering transactions.

Bartering transactions can be done one-on-one or through a barter exchange. In any case, income must be reported by each recipient.

Transactions done through a barter exchange are reported to the IRS on Form 1099-B, Proceeds from Broker and Barter Exchange Transactions.

What to include in income when bartering:

  • If you exchange goods for property, you include the fair market value of the property you receive in income.
  • If you exchange your services for property, include the fair market value of the property you receive in income.
  • If you exchange goods for services, include the fair market value of the services you receive in income.
  • If you exchange services for services, you and the other party can agree on the value of the services to include in income.

Consignment Income

A consignment of merchandise involves a contract under which the owner of the merchandise (consignor) delivers his merchandise to a dealer (consignee) for sale by the dealer rather than for sale to the dealer.

For this service the consignee generally receives a commission. Include in income only items sold by the consignee.

Bear in mind, just physically transferring property to a consignment location does not constitutes a sale. Nor does it constitute a transfer of legal titlle to the property. At year-end, if you're a seller of merchandise, any of your unsold inventory remaining at the consignment location must be included in your ending inventory. If the consignee never sells the property for you, it must be returned to you.

Terminology:

  • Consignor: The one transferring the property (the owner).
  • Consignee: The one receiving the property and contracted to sell it for the consignor. Consignees generally receive a percentage of the sales price.

Debt Cancellation Income

If you owe a debt and creditor say you don't have to pay it back, this is referred to as debt forgiveness.

Debts that are forgiven (canceled) must generally be included in your income. However, certain debts that are canceled do not have to be included in income.

Debts canceled under the following circumstances do not have to be included in income:

  • Debts included in a bankruptcy under Title 11 of the U.S. Code that were discharged.
  • You were insolvent at the time of the cancellation of the debt.
    • Insolvency is where your  liabilities exceed your assets. The amount of debt forgiven that you may exclude from income is limited to extent of you insolvency.

Investment Income

When the sale of investment property, such as stocks, bonds, is sold for a profit, the profit is called a capital gain.

It's called a capital gain because the underlying asset is a capital asset.

You report capital gains (and losses) of Schedule D.

Sales of business property (section 1231)

  • Figured on Form 4797, then
  • Carried to Form 1040, Line 14.

Miscellaneous Income

Business-related income that is not derived from the sale or goods or services is referred to as other income. For example, interest on a business bank account.


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