(a) In general. Gross income includes rentals received or accrued for the occupancy of real estate or the use of personal property. For the inclusion of rents in income for the purpose of the retirement income credit, see section 37 and the regulations thereunder. Gross income includes royalties. Royalties may be received from books, stories, plays, copyrights, trademarks, formulas, patents, and from the exploitation of natural resources, such as coal, gas, oil, copper, or timber. Payments received as a result of the transfer of patent rights may under some circumstances constitute capital gain instead of ordinary income. See section 1235 and the regulations thereunder. For special rules for certain income from natural resources, see Subchapter I (section 611 and following), Chapter 1 of the Code, and the regulations thereunder.
(b) Advance rentals; cancellation payments. Except as provided in section 467 and the regulations thereunder and except as otherwise provided by the Commissioner in published guidance (see § 601.601(d)(2) of this chapter), gross income includes advance rentals, which must be included in income for the year of receipt regardless of the period covered or the method of accounting employed by the taxpayer. An amount received by a lessor from a lessee for cancelling a lease constitutes gross income for the year in which it is received, since it is essentially a substitute for rental payments. As to amounts received by a lessee for the cancellation of a lease, see section 1241 and the regulations thereunder.
(c) Expenditures by lessee. As a general rule, if a lessee pays any of the expenses of his lessor such payments are additional rental income of the lessor. If a lessee places improvements on real estate which constitute, in whole or in part, a substitute for rent, such improvements constitute rental income to the lessor. Whether or not improvements made by a lessee result in rental income to the lessor in a particular case depends upon the intention of the parties, which may be indicated either by the terms of the lease or by the surrounding circumstances. For the exclusion from gross income of income (other than rent) derived by a lessor of real property on the termination of a lease, representing the value of such property attributable to buildings erected or other improvements made by a lessee, see section 109 and the regulations thereunder. For the exclusion from gross income of a lessor corporation of certain of its income taxes on rental income paid by a lessee corporation under a lease entered into before January 1, 1954, see section 110 and the regulations thereunder.
[T.D. 6500, 25 FR 11402, Nov. 26, 1960; 25 FR 14021, Dec. 31, 1960, as amended by T.D. 8820, 64 FR 26851, May 18, 1999; T.D. 9135, 69 FR 41192, July 8, 2004]
Notes of Decisions
Cited in
19
cases, 1964–2017 · leading case:
Fieland v. Comm'r, 73 T.C. 743 (Tax Ct. 1980).
Fieland v. Comm'r, 73 T.C. 743 (Tax Ct. 1980).
· cites it 8× “Rent is specifically included in the definition of gross income by section 61(a)(5), I.R.C. 1954 , and represents payment "for the *755 occupancy of real estate or the use of personal property.”
Hopkins Partners v. Comm'r, 2009 T.C. Memo. 107 (Tax Ct. 2009).
· cites it 16× “There is, however, an exception where a lessee places improvements on real estate that constitute a substitute for rent.”
Norwest Corp. v. Comm'r, 111 T.C. 105 (Tax Ct. 1998).
· cites it 2× “, without any increased depreciation deduction in that year.”
City Gas Co. v. Comm'r, 74 T.C. 386 (Tax Ct. 1980).
· cites it 2× “↩ , specifically requires that a taxpayer-lessor, using any method of accounting, include advance rentals in income for the year of receipt.”
Zolghadr v. Comm'r, 2017 T.C. Memo. 49 (Tax Ct. 2017).
· cites it 2× “61(a)(5) , and represents payment "received or accrued for the occupancy of real estate or the use of personal property," sec. 1.61-8(a) , Income *60 Tax Regs.”
Wuebker v. Comm'r, 110 T.C. 431 (Tax Ct. 1998).
· cites it 2× “In such circumstances, the entire payment is to be included in computing the recipient's "net earnings from self-employment.”
Blue Flame Gas Co. v. Comm'r, 54 T.C. 584 (Tax Ct. 1970).
· cites it 2× “Respondent has treated the purported loan as the prepayment of rentals due under the leases executed by Blue Flame and petitioner contemporaneously with the loan and pursuant to the same agreement.”
United States v. Myra Found., 382 F.2d 107 (8th Cir. 1967).
““Gross income includes rentals received or accrued for the occupancy of real estate, * * * » 26 C.F.R. § 1.61-8 . “Whether a particular item of income falls within any of the exceptions, additions, and limitations provided in section 512(b) shall be determined by all the facts…”
Satterfield v. Comm'r, 34 T.C.M. 872 (Tax Ct. 1975).
· cites it 2× “OPINION Section 61(a)(5) 4 provides that gross income includes any rental payments received or accrued during the taxable year. In our judgment the additional rental payments herein must be included in petitioners' gross income.”
Fry v. Comm'r, 61 T.C.M. 1812 (Tax Ct. 1991).
· cites it 4× “Respondent's schedules do not contain the balance in that account at the beginning of the year.”
Hilldun Corp. v. Comm'r, 26 T.C.M. 1035 (Tax Ct. 1967).
· cites it 6× “We first consider the petitioner's contention that rental income as reported for the taxable year ended August 31, 1960 should be increased. Section 1.61-8(c) of the Income Tax Regulations provides that, as a general rule, if a lessee pays any of the expenses of his lessor such…”
McBride v. Comm'r, 53 T.C.M. 158 (Tax Ct. 1987).
· cites it 2× “The record indicates that improvements of a capital nature were made to the property by the lessee in 1981. 5 Where, as here, improvements are a substitute for rent, such improvements constitute rental income to the lessor.”
Annotations are extracted automatically from the opinions in the
Syfert caselaw corpus and ranked by authority, recency, and
treatment. Dots show Syfertize treatment of the citing case itself.