IRS Publication 527 — Residential Rental Property
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“The prescribed depreciation methods for rental real es- tate aren’t accelerated, so the depreciation deduction isn’t adjusted for the AMT . However, accelerated methods are generally used for other property connected with rental activities (for example, appliances and wall -to-wall carpeting).”
The following are common types of rental income. Advance rent. Advance rent is any amount you receive before the period that it covers. Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use. Example. On March 18, 2025, you signed a 10 -year lease to rent your property. During 2025, you received $9,600 for the first year’s rent and $9,600 as rent for the last year of the lease. You must include $19,200 in your rental income in 2025.
Canceling a lease. If your tenant pays you to cancel a lease, the amount you receive is rent. Include the payment in your rental income in the year you receive it regardless of your method of accounting.
Expenses paid by tenant. If your tenant pays any of your expenses, those payments are rental income. Because you must include this amount in income, you can also deduct the expenses if they are deductible rental expenses. For more information, see Rental Expenses, later. Example 1. Your tenant pays the water and sewage bill for your rental property and deducts the amount from the normal rent payment. Under the terms of the lease, Publication 527 (2025) Chapter 1 Rental Income and Expenses (If No Personal Use of Dwelling) 3
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