Rent concessions and free month specials: how to record them in the books
Charge the full rent on the lease, then post the free month as a separate negative line called Rent concessions. The tenant owes nothing for that month, your income shows both the gross rent and the discount, and the effective rent is the total collected divided by the months in the lease. For a cash-basis owner, the tax effect is simple: you report rent in the year you receive it, and a free month produces no cash.
Two ways to record a free month
A concession is a discount you give to get a lease signed: a free month, half off the first month, a waived fee. There are two ways to book it.
- Charge zero for the month. Simple, but the books now show less rent than the lease says, and nothing marks the discount.
- Charge the full rent, then post a credit to a Rent concessions account. The tenant balance is zero, and the books show both numbers.
Use the second. Concessions are a pricing decision, and you will want to see how much you spent to fill units. Rent concessions is usually kept as a contra-income account, meaning it sits under rent income and reduces it. A rent roll, a T12 or an owner statement can then show gross potential rent, vacancy, concessions and net rent as separate lines. For how those reports are built, see how to prepare a T12.
The entries for a 12-month lease with one month free
Lease: 12 months at $1,500 a month, the first month free. Over the lease, the tenant is charged 12 × $1,500 = $18,000. The concession is $1,500. The tenant pays 11 months, or $16,500.
| Month 1 entry | Debit | Credit |
|---|---|---|
| Accounts receivable (tenant) | $1,500 | |
| Rent income | $1,500 | |
| Rent concessions | $1,500 | |
| Accounts receivable (tenant) | $1,500 |
After both entries, the tenant's balance for month 1 is $0. Rent income is $1,500 and concessions are $1,500 in the opposite direction, so net rent for the month is $0.
Example a made-up lease runs 12 months at $1,500 with month 1 free. Gross rent charged is $18,000, concessions are $1,500, and net rent is $16,500. The effective monthly rent is $16,500 divided by 12, which is $1,375. A neighbor charging $1,375 with no special collects the same total over the year.
Effective rent is the number to compare when you decide whether a special is worth it against dropping the price. A free month of 8.3% of the annual rent ($1,500 of $18,000) is the same cost to you as an 8.3% price cut for 12 months, but it keeps the lease rent high, which keeps the lease rent on the rent roll at the full figure.
What it means at tax time
IRS Publication 527 says that if you use the cash method, you report income in the year you actually or constructively receive it, and that advance rent, meaning an amount received before the period it covers, is included in the year you receive it regardless of your method. A free month is a month for which nothing is received. See IRS Publication 527.
Example a made-up lease starts November 1 with November free, at $1,500 a month for 12 months. In the first year the tenant pays December only, so $1,500 is received. The next year the tenant pays January through October, 10 × $1,500 = $15,000. The two years together receive $16,500, the same as the lease total.
A concession you give as cash, like a $300 move-in gift card, is a different case than a month that is waived. Ask your tax preparer how to report it before you book it. And if you waive a fee or charge as part of the deal, such as an application fee or a pet fee, record the waiver as a concession too, not as a delete, so the history stays.
Mistakes to avoid
- Booking a concession as a repair or marketing expense. It is a reduction of rent, not a cost the building paid someone for.
- Leaving the month unrecorded. If the charge never exists, the rent roll and T12 hide the discount and your occupancy math looks better than your income.
- Mixing up concessions and vacancy. A vacant unit has no lease and no charge. A concession has a lease and a discount.
- Forgetting the lease says what happens if the tenant leaves early. If a lease says the free month must be repaid on early termination, record that as its own charge when it happens, and check the lease and your state's rules before you collect it.
- Posting a concession against a security deposit. The deposit is the tenant's money held in trust and stays untouched. See security deposit accounting.
In the owner's reports, show concessions by month so a year of specials is visible at a glance. A rent roll shows the lease rent, and the T12 shows the concession as its own line. Rent roll: how to keep one and read one covers what each report should show.
How DoorKeeping handles it
In DoorKeeping the lease keeps its full rent, and a concession is posted as a separate line on the tenant ledger, so the property's profit and loss shows gross rent and concessions apart. Each property has its own books, and the owner statement and rent roll come from the same ledger. A charge or credit that affects the tenant waits for your one-tap approval. DoorKeeping gives no tax advice, so ask your tax preparer how a concession should be reported.
Sources
- IRS, Publication 527, Residential Rental Property (2025), read Oct 30, 2026
Questions
- How do I record a free month of rent?
- Charge the full rent, then post an equal negative line to a Rent concessions account. The tenant owes $0 for the month and your books show the gross rent and the discount.
- Is a free month taxable income?
- Not by itself. IRS Publication 527 says cash-method rent is reported in the year received, and a free month produces no cash. Ask your tax preparer about a cash concession.
- What is effective rent?
- The total rent collected over the lease divided by the number of months. For 12 months at $1,500 with one month free, it is $16,500 divided by 12, or $1,375.