How Do You Handle Rent Collection & Payouts for Accurate Accounting?

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How Do You Handle Rent Collection & Payouts for Accurate Accounting?

Nadir M.
Property Manager · Westminster, CO · Member since 2018 · 486 posts · 110 votes


Property managers, how do you collect rent from tenants, keep your management fee, and send the remainder to the owner without it reflecting as if you received the full rental income in your bank account?

Are you using a specific property management software to handle this automatically, or do you have a different system in place to ensure accurate tax reporting?

Would love to hear what’sworking for you!

Thanks!

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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
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@Nadir M. you would show 100% of whatever you collected on behalf of an owner.

Of course, if tenant pays via credit card, you would NOT include the credit card fees, because you did not receive them.

From the funds in your OPERATING account, you would pay any expenses on behalf of the owner, including your management fees - which you woul transfer to your PMC account.

Owner will be paid from Operating account.

Your vendors (office expenses, auto, etc) would be paid from your PMC account.

Year end, you are require by IRS to send a 1099 with GROSS amount collected on behalf of owner. Owner will need an Annual Owner Statement from your acconting system, reflecting those gross collected amounts and all expenses, including your management fees. It's up to their tax professional on how to present that info on their tax returns.

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  • Simon W.Business Member
    Real Estate Consultant · Lehigh Valley PA & New York City · Member since 2013 · 1k+ posts · 660 votes
    1y
    Quote from @Nadir M.:


    Property managers, how do you collect rent from tenants, keep your management fee, and send the remainder to the owner without it reflecting as if you received the full rental income in your bank account?

    Are you using a specific property management software to handle this automatically, or do you have a different system in place to ensure accurate tax reporting?

    Would love to hear what’sworking for you!

    Thanks!

    You need to reflect the full rental income that you collected on the behalf of the owner. Any PM software should be able to do everything you mentioned.

    I am not a PM but I am an Accountant/CFO for PM companies and real estate investors. The PM must show the rent income collected less the mgmt fees and other expenses, distribute the remaining amount to the owner.
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  • Nadir M.
    OP
    Property Manager · Westminster, CO · Member since 2018 · 486 posts · 110 votes
    1y

    I would love to connect and further discuss 

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  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    1y

    @Nadir M. you would show 100% of whatever you collected on behalf of an owner.

    Of course, if tenant pays via credit card, you would NOT include the credit card fees, because you did not receive them.

    From the funds in your OPERATING account, you would pay any expenses on behalf of the owner, including your management fees - which you woul transfer to your PMC account.

    Owner will be paid from Operating account.

    Your vendors (office expenses, auto, etc) would be paid from your PMC account.

    Year end, you are require by IRS to send a 1099 with GROSS amount collected on behalf of owner. Owner will need an Annual Owner Statement from your acconting system, reflecting those gross collected amounts and all expenses, including your management fees. It's up to their tax professional on how to present that info on their tax returns.

    [email protected]248-209-6824
    Logical Property Management4.9451 Reviews
    WebsiteView Page
    1Reply
  • Nadir M.
    OP
    Property Manager · Westminster, CO · Member since 2018 · 486 posts · 110 votes
    1y
    Quote from @Drew Sygit:

    @Nadir M. you would show 100% of whatever you collected on behalf of an owner.

    Of course, if tenant pays via credit card, you would NOT include the credit card fees, because you did not receive them.

    From the funds in your OPERATING account, you would pay any expenses on behalf of the owner, including your management fees - which you woul transfer to your PMC account.

    Owner will be paid from Operating account.

    Your vendors (office expenses, auto, etc) would be paid from your PMC account.

    Year end, you are require by IRS to send a 1099 with GROSS amount collected on behalf of owner. Owner will need an Annual Owner Statement from your acconting system, reflecting those gross collected amounts and all expenses, including your management fees. It's up to their tax professional on how to present that info on their tax returns.


     Thank you drew. So it sounds correct to collect all amounts into my business account then and send a 1099 to the owner reflecting what they received minus the PM fee? So there is no PM fee for them to expense correct? 

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  • Adam BartomeoBusiness Member
    Real Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
    1y

    Drew and Simon are correct. The 1099 will reflect the amount of money that you sent to the owner. So, rent minus ALL expenses that the PM paid - commission, lawn, water, maintenance, etc.

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  • Nadir M.
    OP
    Property Manager · Westminster, CO · Member since 2018 · 486 posts · 110 votes
    1y
    Quote from @Drew Sygit:

    @Nadir M. you would show 100% of whatever you collected on behalf of an owner.

    Of course, if tenant pays via credit card, you would NOT include the credit card fees, because you did not receive them.

    From the funds in your OPERATING account, you would pay any expenses on behalf of the owner, including your management fees - which you woul transfer to your PMC account.

    Owner will be paid from Operating account.

    Your vendors (office expenses, auto, etc) would be paid from your PMC account.

    Year end, you are require by IRS to send a 1099 with GROSS amount collected on behalf of owner. Owner will need an Annual Owner Statement from your acconting system, reflecting those gross collected amounts and all expenses, including your management fees. It's up to their tax professional on how to present that info on their tax returns.


     Am I able to just send a 1099-MISC to the owner with their net profit only…ie the amount that was transferred to them minus all operating expenses. That way the only thing they would depreciate is the 27.5 year rule 

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  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    1y

    @Nadir M. 
    @Adam Bartomeo

    Guys the IRS requires the 1099 amount to be equal to the GROSS amount you collected on behalf of the owner, even if you are collecting water bills, etc. from tenants.

    NOTHING is deducted from the Gross amount,including your PMC fees!

    The Annual Owner Statement should break down all the expenses that the owner's tax professional then figures out how to deduct and on what tax schedule.

    [email protected]248-209-6824
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  • Nadir M.
    OP
    Property Manager · Westminster, CO · Member since 2018 · 486 posts · 110 votes
    1y
    Quote from @Drew Sygit:

    @Nadir M. 
    @Adam Bartomeo

    Guys the IRS requires the 1099 amount to be equal to the GROSS amount you collected on behalf of the owner, even if you are collecting water bills, etc. from tenants.

    NOTHING is deducted from the Gross amount,including your PMC fees!

    The Annual Owner Statement should break down all the expenses that the owner's tax professional then figures out how to deduct and on what tax schedule.


    So that way the owner can expense everything throughout the year?  

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  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    1y
    Quote from @Nadir M.:
    Quote from @Drew Sygit:

    @Nadir M. 
    @Adam Bartomeo

    Guys the IRS requires the 1099 amount to be equal to the GROSS amount you collected on behalf of the owner, even if you are collecting water bills, etc. from tenants.

    NOTHING is deducted from the Gross amount,including your PMC fees!

    The Annual Owner Statement should break down all the expenses that the owner's tax professional then figures out how to deduct and on what tax schedule.


    So that way the owner can expense everything throughout the year?  


     Huh?

    Why would they have to expense throughout the year?

    [email protected]248-209-6824
    Logical Property Management4.9451 Reviews
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  • Nadir M.
    OP
    Property Manager · Westminster, CO · Member since 2018 · 486 posts · 110 votes
    1y

    If you’re giving the owner the gross amount along with an owner expense statement, that was they’ll be able to write off the expenses? I guess that’s what I was trying to say. Is that correct? The 1099-MISC will include the gross amount in line 1 not the net. 

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