When is Land Rent Reported as Income?

We had a reader send in the following question:

“We own farm land in Iowa.　 Last half rent has not yet been received though contract states last half to be received by landlord on December 1.　 If rent moneys are not received until January of 2011 is rent properly reported on tax return as 2010 income?”

The key question for this landlord is for tax purposes, does the contract terms spell out when the rent is income or is it the actual receipt of the rent?

The answer is that income is reported in the year that the rent is either actually received or constructively received, whichever occurs sooner.  In this case, assuming the payer of the rent is not a related party, the landlord will be taxed on the receipt of the rent in 2011 if it is actually received in January.  Even though the contract calls for the last half by December 1, as a cash basis taxpayer, the income is not reported until it is received.

However, if the tenant were to give the check to the landlord on the last day of the year and the landlord could not put it in the bank until 2011, they would still be taxed on the rent income in 2010.