Every year we get the same question. The question is not unique to us but in fact is encountered by all property managers. A resident pays January rent a few days early, usually in late December, and the owner asks “Why is that amount included on my 1099 for 2025. That money is for January 2026 rent?” It’s a reasonable question, but the IRS answer is always the same.
For tax purposes, rental income is reported when it is received, not when it applies. Most rental owners are cash-basis taxpayers, which means income is taxable when it is actually or constructively received.
The IRS uses a concept called constructive receipt. Treasury Regulation §1.451-2(a) explains that income is considered received when it is credited to an account or otherwise made available, even if the taxpayer hasn’t physically taken possession of the money. When a property manager receives rent on behalf of an owner, the IRS treats that rent as received by the owner at that moment. You can read the regulation directly here:
https://www.law.cornell.edu/cfr/text/26/1.451-2
The IRS also addresses this issue directly in IRS Topic No. 414, Rental Income and Expenses. It states that advance rent must be included in income in the year it is received, regardless of the period the rent covers. In plain terms, January rent paid in December is December income. The IRS guidance is available here:
https://www.irs.gov/taxtopics/tc414
Here’s the common scenario. A resident pays $2,000 for January rent on December 28. The property manager deposits the payment and plans to send it to the owner in January. Even though everyone thinks of it as January rent, the IRS requires it to be reported in the year it was received. Delaying the owner distribution or labeling the payment as “January rent” doesn’t change the tax result.
This comes up every year because residents like to pay early, owners think in rental months, and accounting systems label income by period. But IRS timing rules are based on receipt, not intent.
The best practice for property managers is to set expectations early and explain that rent received in December will be reported as December income. A quick reminder before year-end can prevent confusion, frustration, and mismatched records later.
If rent comes in before December 31, the IRS considers it current-year income. It’s that simple, and it applies every year. Your owner client may not like your answer but stick to your guns. They can report it however they want on their return. As a property manager, your requirements and obligations are clear. Good luck out there!
