Minimize Income by Delaying Rent Collection

Delaying rent collection during the last months of the year may offset rental income and put you at a better tax liability.

The benefit of rental income is that you can report a loss while still making a profit. In a tax year, if rental income exceeds rental expenses, that means you have a profit from rental activity, and you will have to pay an additional tax on it.

To avoid paying taxes on the rental profit, delay rent collection until the next tax year so you don’t have to report the income this year. This is possible because rental income is reported when rent is collected, so if rent wasn’t collected this year, it isn’t reported as income this year. By lowering rental income, you reduce your tax liability. You will still collect your rent, while completely avoiding the tax.

This strategy works really well if you have a lot of expenses the next year (replacing a roof), and high income limitations do not allow you to report a loss. By offsetting rental income in certain years, you can change your taxable liability and save a lot of money.

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This entry was posted on Tuesday, June 2nd, 2009 at 9:07 am and is filed under Schedule E. You can follow any responses to this entry through the RSS 2.0 feed.