1099 from property manager question

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1099 from property manager question

Paige Rob
Investor · Irvine, CA · Member since 2016 · 6 posts · 1 vote

Of the several property mangers I have there are 2 that do 1099's differently.

One manages 2 properties and does not issue a 1099. Annually I ask and annually they tell me that their owners just use the income from the end of the year statement. I do but this seems odd.

The other will only report on the 1099 the income disbursed to me (my owner draws) and does not include the rental income they collected that is sitting in my account that has not been disbursed. Why is some money not disbursed? I'm letting money accumulate there to do big updates on one of the units (ac, flooring). So, for example, 12k was collected but only 6k was officially mailed to me leaving 6k of my money with the PM for expenses when realized. This would be the 3rd year in a row where my 1099 does not match the actual income they received on my behalf from my tenants. What should the 1099 reflect?

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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
4y

I agree with the others.

PM #1 is an amateur and doesn't understand the basics of running their business. You should fire them before something serious goes wrong.

The second PM is at least trying (I think), but they are doing it wrong. They should report ALL income and expenses, even if they retain a portion of that income as a reserve for future expenses.

Personally, I would not let the PM hold you money long-term. You should hold it and disburse it to the PM when it's time to spend it.

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  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    4y

    I BELIEVE…

    #1 they are required to issue a 1099, is this a “real” company or somebody working out of their garage?

    #2 they should show all income and all paid expenses. Your 1099 will usually show more income than you actually received as it might show application fee income and then application expenses, or late fee income and then expenses. You then account for these changes on your tax forms. I don’t believe it should ever be less than actual income. 

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  • Kurt Lane
    Property Manager · Portland, OR · Member since 2020 · 50 posts · 39 votes
    4y

    Hi @Paige Rob,

    The first property manager you mention should absolutely be generating an annual 1099 for you if your income is greater than $600. Certain types of corporations (such as S-Corps) don't need to receive 1099s, but most property owners aren't incorporated in that way and it sounds like they're not generating 1099s for any of their clients.

    You should speak to an accountant regarding your second PM, but we report all received income - whether disbursed or not - on our owner 1099s. Generating 1099s is largely automated in our process - we use Buildium for running our PM business - and it calculates in all income received. This ties back to how client trust accounts work. Property Managers do not "own" any of the money they hold on behalf of owners (via collected rent and reserve funds) or tenants (via security deposits). Property managers also don't have to report funds in client trust accounts on their business taxes, which, in the case of your 2nd PM, means that the non-distributed income is not getting reported anywhere. That's something the IRS doesn't like. Again, I would recommend speaking to an accountant about that non-distributed income held in reserve for you, but it's likely that income should be accounted for.

    Best,

    Kurt Lane

    Owner, Chroma Property Management (chromaproperty.com)

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    4y

    I agree with the others.

    PM #1 is an amateur and doesn't understand the basics of running their business. You should fire them before something serious goes wrong.

    The second PM is at least trying (I think), but they are doing it wrong. They should report ALL income and expenses, even if they retain a portion of that income as a reserve for future expenses.

    Personally, I would not let the PM hold you money long-term. You should hold it and disburse it to the PM when it's time to spend it.

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  • Paige Rob
    OP
    Investor · Irvine, CA · Member since 2016 · 6 posts · 1 vote
    4y

    wow....thanks to everyone, I knew the answers but I had to level set to make sure I was not missing anything

    Yes I know PM#1 should issue a 1099. They are not a new PM company, they are not small and they are in a metro area.  Another thing they do that I don't understand is charge me per unit for some type of insurance. This past year it really went up to close to $200 and that is on each unit. Annually I ask what it is for and no answer other than for an umbrella liability policy to benefit all clients.

    PM#2 should report to me the actual income they received from my tenants. For the past 2 years I had my tax preparer make the adjustment because it was wrong but I don't want to again especially for this amount. I do understand the differences caused by fees, etc. that are income collected outside of rents. 

    Again, thank you all.

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  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    4y

    So, why are you stll employing these two PMC's?

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  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    4y

    Tell the first PM, “No thanks, please cancel the $200 charge as I already have an umbrella policy.” If you want to go in to detail, tell them, I only have 12 properties and it costs $100 per property for $2million, so if you’re managing more than 12 properties you’re paying at least a 100% markup or profiting off me without disclosing it. 

    Just because they are only numbers on a screen doesn’t mean rent real dollars leaving your wallet. Explain to both the changes you need to see or you’ll be moving on. Blame the “bad guy”. Tell them your account isn’t sure what they’re doing is legal and you don’t want the IRS coming after you when one of their customers gets audited. 

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