Bookkeeping

How to categorize the water amp and fire dues being paid by tenants?

I just got a client who has a mobile home park with 180 lots. I noticed that some tenants in some months pay water and fire dues plus their monthly rents. When I tried to understand how the previous accountant was recording these, I noticed that sometimes she was recording it as “rental income” and some times as “water & fire dues expense” to offset the expenses!

Unfortunately when I went back to previous years I saw that this inconsistency was going on from the beginning. Now I want to at least to clean up 2020 but I am not sure if I should record them as a water or fire due income or just as water or fire due expense!

in progress 2 Answer

Answer

  1. 29 Answers

    However you track the income & expenses, keep it consistent year to year for comparative purposes. Here you will want to record the cash received from tenants for utility expenses as Income reimbursements on your clients books. At the same time, your client will have paid the water & fire dues and book this as an Expense on your clients books. This break out of income (cash received) and expenses (cash paid) is important for tax reporting purposes.

    In short, if your tenant pays any of your expenses, the payments are rental income. You must include them in your income. You can deduct the expenses if they are deductible rental expenses. See Rental Expenses in Publication 527, for more information. You can find more specific guidance on Residential Rental Property on the IRS website here:

    https://www.irs.gov/publications/p527

  2. 15 Answers

    Thanks. That was very helpful!

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