I have a client who is the landlord on a rent to own agreement for a condo. By the agreement, a portion of the rent will be put into an escrow account and will be credited toward the purchase price if the tenant decides to exercise the rent to own agreement. If the tenant does not exercise the option by the end date of the agreement, all of the monies in the escrow account become my client's assets, as owner of the property.
Because the portion of the tenant's monthly payment is not going toward rent at the time of payment, but may ultimately be received by the owner, I'm assuming that she should only claim rental income on her taxes in the amount applied to the rent, and include the amount in the escrow account as rental income in the year that it reverts back to the owner. Can anyone tell me if my assumption is correct?
Because the portion of the tenant's monthly payment is not going toward rent at the time of payment, but may ultimately be received by the owner, I'm assuming that she should only claim rental income on her taxes in the amount applied to the rent, and include the amount in the escrow account as rental income in the year that it reverts back to the owner. Can anyone tell me if my assumption is correct?