PMs and CPAs - do you report gross or net rents on 1099misc?

Question

There was a thread on the board by @Nancy Neville on the general topic of 1099misc. Apparently it got zapped somehow by the moderators as I can't now find it anymore. I do have a side-question related to that topic and that is: should the PM report gross rent or "net" rent on the 1099misc? My PM reports "net" rent because that's what he says his Quick Book program spits out. To me, it seems he should report gross rents, so that I then can take that as starting point for my tax return and deduct management fees, maintenance, etc.

I'm very clear how I will file my return, but I'm concerned that if the IRS expects to get gross rents on the 1099misc, then our numbers won't match and this could be an audit flag.

Any thoughts? @Dawn Brenengen @Steven Hamilton II

I'm very clear how I will file my return, but I'm concerned that if the IRS expects to get gross rents on the 1099misc, then our numbers won't match and this could be an audit flag.

Any thoughts?  @Dawn Brenengen @Steven Hamilton II

Matt Devincenzo · Answer

Mine reports net rent after they've taken their management fee. I actually was going to be discussing this with them myself, so I'm interested to see what any of the tax prep guys say on this issue.

Pat L. · Answer

Our CPA documents Gross rents collected.

as an aside here is a great site that explains section 179 deduction(s) many fail to claim ...

http://www.section179.org/simplifying_section_179.html

Peter MacKercher · Answer

Owner of a PM here.

1099 are gross rent collected. They have to be mailed out by today 1/2/2015.

We also send everyone there yearly summary with each month broken down. So they have what they need to take to their account to file their taxes correctly. Were required to file the 1099 but not give them the yearly summary and breakdown.  As an investor I have found that it is best to give our clients what they need in a simple easy spreadsheet. After all i own property that is managed by my PM too.

Alex Hamilton · Answer

This Topic had me confused but, I decided to  report only income my management company gets in management fees as income on my Tax Returns.  I let the owners of the property worry about gross income. Don't use 1099's other than to independent contractors I pay directly.  Anyone know if i'am doing this wrong

Chris Kennedy · Answer

I think the answer depends, and we really need an expert opinion from one of the CPAs on the site.

Having said that, here is my understanding of it:

The property management company collects rent from our tenants. Any repairs, PM fees, or ongoing maintenance (lawn care for example) is then paid by the PM company to the various vendors. These transactions all happen within the PM company bank account, and should be accounted for in their bookkeeping.

Our rental property LLC then receives a check from the PM company which reflects the income received FROM the PM company (which is really net rental income). So the 1099 reflects the total amount of the checks received from the PM. Any miscellaneous expenses I then pay out of the rental property LLC after that (for example I still pay our own property taxes) would result in the true net rental income.

So I think reporting gross rental income on the 1099 would be inaccurate. I think it needs to reflect the actual amount paid to you, which is the net rental income if the PM pays all your operating expenses out of their operating account and then cuts you a check.

Of course I could be completely wrong since I am not a tax expert.

Dawn Brenengen · Answer

It should be gross rents, and Nancy's post also agreed with that.  I report gross rents and mail along a printout of all of the expenses that the owner should deduct when filing (like my fees, maintenance, etc).

Blake Hanson · Answer

What if a 1099-K is sent out by a PSE for Third Party Network Transactions? I use TenantCloud and the payment program (TC Payments powered by Dwolla) sends out a 1099-K for rent income paid to the owner (i.e. net rent after deducting PM fee and expenses).  Do I have any obligation to report the different between gross rents and 1099-K or do my own 1099-MISC for gross rents (this would result in income being reported twice)?

My CPA said to issue my own 1099-MISC for gross rents. 1099-K would report electronic payments made and owner would file that on return ALONG with an expense line item stating the 1099-K was double up income.

Steven Hamilton II · Answer

The PM should be reporting the gross minus security deposits(until they are kept).

Andrew S. · Answer

Thanks Steven - yes, I think I'm very clear on what I need to do on my end and that's why my PM's reporting the net rents didn't make any sense to me.  I just wanted to gather some additional input before I ask him to change his ways....

PM is an LLC in this case.

Steven Hamilton II · Answer

You should be reporting your gross amounts.If your PM is a corporation you DO NOT have to issue a 1099.You must always report the gross amount whether that is reflected on the 1099 or not.Andrew, your PM needs to make some adjustments to their reporting in QB.

PMs and CPAs - do you report gross or net rents on 1099misc?

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