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Cash to Accrual?

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    Cash to Accrual?

    A real estate trust wrote a lease stipulating that the trust would receive rent plus compensation in the form of rent over 10 years to pay back the Trust for a 200k buildout.
    The yearly amount of additional rent was figured on a 10 year amortization schedule of principle, interest, and an additional kicker of 2%. But like I said the lease says this amount is rent.
    This started in Dec 2003 in early 2005 the tenant prepaid the remaining balance on the amount owed on the buildout. This seems to make the Trust liable for taxes on like $190,000 of rent while the depreciation deduction on the buildout will keep going for another 36 years. Does my client have a chance to file a Form 3115 and pay whatever fee is required to get the IRS to allow a change in accounting method from cash to accrual so as not to distort his income?

    #2
    Prepaid rent

    Prepaid rent is taxable in the year received, whether you are on accrual or cash basis.

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      #3
      Prepaid Rent

      Agree, advance payments of rent under a lease that does not put any restriction or limitation on their use or enjoyment are income in the year received no matter what accounting method or period you use.

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