Rental Property Income - Tenant Improvements and Reimbursement Through Rent

[Benjamin Wallace]

Hey y'all. I have a tax question regarding how to report my rental income when my tenant made and paid for improvements and I am reimbursing them by lowering their monthly rent. 

When I signed my tenants into a year long lease, we made an agreement (addendum on the lease) that they would pay for new carpet and kitchen flooring out of their pocket in exchange for a lower monthly rent. The total cost was averaged out over the 12 months. Example: The tenants were paying $1500/month before the flooring was installed. The flooring costs came out to $6000 total ($500/month) which effectively reduced their monthly payment to $1000/month. 

My question is how do I reflect this income on my taxes. Do I only report that $1000/month as my actual rental income and the extra $500/month as a capital improvement? Is the rental income reflected on my P&L statement still $1000 and not the full $1500?

I'm brand new to the real estate game in 2023 and this is my first year filing taxes for my rental property. 

I would appreciate some guidance!

Thanks in advance!