Our store owes extra rent based on annual sales. When do we deduct the year-end true-up?
Percentage Rent and Year-End Sales True-Ups. A specific owner scenario, the facts that change the answer, and the records needed for a tax review.
By AE Tax Advisors Team · Updated October 28, 2026
The deduction timing depends on the tax method, lease terms and when the additional obligation is fixed and paid or otherwise satisfies applicable requirements. A year-end sales estimate is not automatically deductible rent.
A specific business-owner situation
A shop pays base rent plus a percentage of annual sales above a threshold. The final landlord statement arrives after year-end. The preparer needs the contractual formula, actual sales and settlement timing rather than simply the book accrual.
Illustrative example, not a client result.
What to establish before filing
- Reconcile sales used in the lease formula.
- Determine when the obligation becomes fixed.
- Apply the tax method to payment and performance facts.
Which fact changes the answer?
A genuine contingent sales-based charge differs from prepaid fixed rent or a disputed demand. Identify the actual obligation before deciding whether the later statement changes the year-end analysis.
A mistake to avoid
Copying a management rent accrual into the tax return can ignore cash-method or other timing requirements.
Records that support the decision
- Lease.
- Annual sales report.
- Landlord true-up.
- Payment evidence.
The decision to document
Maintain a base-rent and percentage-rent reconciliation. Have the preparer document any book-to-tax adjustment and reverse it correctly when the amount is paid.
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Related questions
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Sources and editorial context
General educational information prepared with AI assistance. No individual professional review is claimed. Apply the relevant tax-year rules to the actual records. Editorial policy · AI disclosure.