Both interesting. Reg. 1.61-8 is clear.
(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.
. I did not see any "otherwise provided" published guidance, but maybe there is some. And 467 is n/a.
RE: your first client, assuming there was no rental use in 2017, then I think he has the income and no offsetting deductions other than those that are allowed on Sch A for personal use property.
Re: your second client, there is arguably a conflict between the section 280A(g) rule,
... if a dwelling unit is used during the taxable year by the taxpayer as a residence and such dwelling unit is actually rented for less than 15 days during the taxable year, ...
, and the reg. cited above. What does the
bold phrase mean? Does it refer to actual use by the lessee for less than 15 days in 2017? Or does it mean actually rented in 2017 (no issue there) in the
aggregate for less than 15 days . The latter would be a problem but I think would be a very strained reading, i.e., I think you'd be OK on that point. And on how much rent to include, yes, I'd prorate, and include only the excess over 14 days as rent income. And on the depreciation question, only in 2018. Here is from a footnote in
Norwest Corporation, 111 TC 105, a footnote that is only
dictum in the case, but which I think is a correct interpretation. (sorry, I left out the footnote quote).
Consider that a lessor of income-producing property must take advance rentals into gross income in the year of receipt, sec. 1.61-8(b), Income Tax Regs., without any increased depreciation deduction in that year.
I guess another argument is that a subsequent law should trump an older reg.
Consider disclosure.
I am surprised that there have been no cases, Rev Ruls, or PLRs on situations like yours. Maybe I missed them.