Looking to source some wisdom from the experienced CPAs/Tax professionals on here.
My unmarried partner and I co-own a duplex in TX. We live on one side together and rent out the other side (medium term furnished rental). Her and I own the property equally and split all income and expenses equally. We of course don't actually split each individual expense at the point of sale, but make sure we are squared up every month or so. (We have not used a joint business checking account because this is a duplex that we also live in so it would seem to only serve to confuse things since nearly every large expense is a mix of rental business and personal - renovations, mortgage, utilities all are mixed between business and personal.) Our personal and rental record keeping has been pretty meticulous - all receipts have been kept and expenses documented and tracked. Nothing too complicated really (for the most part).
I have read multiple books on rental taxes and feel quite comfortable with it mostly but I need some advice for filing 1099-NEC information returns for expenses on the rental side. We have had some expenses paid to independent contractors (such as a 10k renovation) that require filing a 1099.
For me and her to both claim these expenses as a deduction we both ought to file 1099s. I would imagine it best that we both file a 1099 to the contractor for our half of the expenses. Does this require us to actually split the payment and send the contractor separate checks from our personal checking accounts? Or can I make the payment myself and she reimburse me (which is much, much more convenient when many expenses are involved). If I write a check for the entire amount myself would it still be appropriate for her and I to both send a 1099 to the contractor, each of which reflects our half of the expense? Or if I write the check to the contractor does she have to send *me* the 1099 for her half (5K in this example), and my 1099 has to reflect the full payment to the contractor (10k). In that case my return would show an additional income of 5k...? This seems extremely unwieldy. I guess what I'm asking is can one co-owner file a 1099 when they did reimburse half the expense but did not make the payment directly - assuming we have a spreadsheet that documents we are square on the rental expenses by the end of the year? Or does IRS need receipt for evidence of direct payment to the contractor?
PS Please do not recommend we form a Partnership, we do not need to do so and that is not the appropriate solution for us here. We do not provide "services" to tenants.
PPS On the *income* side I am aware of the IRS guidance asking that if i receive a 1099 for rental income that I send the co-owner a 1099 for "nominee recipient adjustment". I have also read that tax professionals may view that 1099 as unnecessary as long as I list that 'nominee recipient adjustment' on Schedule E line 19. I have not seen any similar guidance for expense sharing though!
