How to account income from multiple properties on a single 1099

Question

Scenario: I have 3 properties managed by on property manager. I receive one 1099 for all properties at the end of the year. I am using a CPA to do my taxes. How should the tax return capture each property separately as well as the 1099.

1099 Total (example): 36,000k total

property 1: 10k total rent

property 2: 20k total rent

property3: 6k total rent

This is what we are doing and just curios as pros and cons: We report a schedule E for each property. property 1 total rent is 10k, property 2 total rent is 20k, property 3 total rent is 36k

property 3 then has a schedule statement that shows 36k total minus 30k.
She stated she did this so that we report the full 36k 1099. If we didn't have a line item for the 36k then IRS would flag our return because we have a 36k 1099 that is not being reported.

side note: I have about 25 properties managed by 4 property managers. In short I am replicating the process 4 times because I each one of my 1099s are tied to multiple properties.

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I have asked 3 accounting professionals and received slightly different answers.

I am looking for feedback from other accounting or CPA professionals. Thank you much

Account Closed · Answer

Reporting each property separately on Schedule E is generally the correct approach, as it allows you to accurately capture the income and expenses associated with each property. However, the method of handling the 1099 income on the tax return may vary depending on the circumstances and interpretation of tax laws.

The approach your CPA has taken, where each property is reported separately on Schedule E and then adjusted on a statement for property 3 to match the total 1099 income, could be viewed as a cautious approach to ensure compliance with IRS reporting requirements. By showing the full 1099 income on the return, it helps mitigate the risk of IRS flags or inquiries related to unreported income.

However, it's worth noting that the IRS typically matches 1099 income reported by payers to the income reported on taxpayers' returns. As long as the total income reported on your tax return matches or exceeds the total income reported on your 1099s, and you have documentation supporting the breakdown of income by property, the risk of audit or inquiry may be relatively low.

Pros of the approach:

• Compliance: Helps ensure compliance with IRS reporting requirements by matching the total 1099 income on the tax return.
• Risk mitigation: Reduces the risk of IRS flags or inquiries related to unreported income.

Cons of the approach:

• Complexity: Requires additional documentation and statements to reconcile the reported income with the 1099s, potentially adding complexity to the tax return.
• Time and cost: The additional work required to prepare separate statements for each property may result in higher accounting fees.

Ultimately, it's essential to weigh the pros and cons and consider the specific circumstances of your situation. Consulting with your CPA and discussing any concerns or questions you have about the approach can help ensure that your tax return accurately reflects your income from rental properties while minimizing compliance risks.

Michael Smythe · Answer

@Jonathan Small your PMC should give you an Annual Owner Statement with a breakdown of income & expenses for each property.

Give this, the 1099-Misc they sent you and add any property taxes or insurance you paid and bank 1098's to your CPA.

Basit Siddiqi · Answer

The 1099 is issued to you and the IRS to make sure that you are reporting rental income on your tax return.

I would use the annual property management statement to report the income and expenses per property.

The property management statement will likely include property management fees charged to you and repairs made on your behalf.

Jonathan Small · Answer

@Michael Smythe This is exactly what happens. The question is more around how a tax professional captures the information in the return. Thanks for the feedback.

Benjamin Weinhart · Answer

I personally would avoid adding 36k minus a 30k just to avoid scrutiny by the IRS. This actually might be illegal of your CPA to suggest since they can't do/suggest things for the primary purpose of manipulating the audit regime of the IRS as it violates our code of ethics. I feel like how you had it up until that point is fine though. If you do get flagged by the IRS, it's a very easy explanation anyway.

How to account income from multiple properties on a single 1099

How to account income from multiple properties on a single 1099

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