Taxing Definitions

Constructive Receipt

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As a general rule, for tax purposes your income includes all the income you actually or constructively receive during the tax year.

“Constructive receipt” means income is available to you without restriction. An example is when your bank pays interest on your checking account by depositing an amount in your account that you can use when you choose. Even if you do not take the interest out of the account, you have constructively received it, and the interest is reportable as income on your tax return in the year the bank deposits it in your account.

Income is not constructively received in situations when your control is subject to substantial restrictions or limitations. For instance, say you own a certificate of deposit that matures in a year or less, and you’re required to forfeit three months of interest if you close the account before maturity. If the CD spans two of your taxable years (as in a six month CD taken out in September and maturing in March), and the bank credits your account for interest earned but not yet withdrawn, you may not have constructive receipt of that interest. [See Federal Tax Regulation 1.451-2.]

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