Jose started renting a house to Bill for $600 per month beginning February 1, 2019. Bill paid $1,200 on January 15, 2019, which included one month’s rent and one month’s security deposit. The rent is due by the 5th of the month. The lease specifies that the security deposit will also be used as the final month’s rent. Bill pays the rent on the 2nd of each month. Bill also paid $150 for repairs to the air-conditioning system in July and $80 for a roof repair in September. He deducted the amounts from the rent paid to Jose for those months. Bill was unable to pay December’s rent until January of the next year. How much should Jose report as rental income for 2019?

$6,600

Explanation:

Income, although not typically in a taxpayer’s possession, is usually constructively received in the taxable year which is when it is credited to the person's account, or made available so that the person may draw upon it at any time, or could have drawn upon it in the taxable year when the notice of intention to withdraw has already been given.

However, income is not constructively received when the taxpayer’s control of receipt is subject to limitations or restrictions. In this case, the last month’s rent ($600 security deposit) has already been constructively received and is included; but, the rent that was received in January for the December rent has not been constructively received and is therefore not included for a total of $6,600 which was derived from the [$600 deposit which was last month rent + ($600 × 10 months Feb-Nov)].

= $600 + $6000

= $6600

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