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Updated almost 5 years ago on . Most recent reply

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Scot C.
  • Lawton, OK
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1099 Misc Box 3

Scot C.
  • Lawton, OK
Posted

I use a property manager for an out of state rental property.  Last year we kept most of a security deposit for repairs after the tenant moved out.  We also received some payments from the new tenants for utilities payments that I made for a few months because the tenants were slow to switch the utilities to their name.  These things came to almost $3,000.  My property manager added this amount to my 1099-MISC under Box 3 - other income.  I contend that this should have been included in Box 1 - rents.

Box 3 amounts are not allowed to be included in my Schedule E, so they are kicked out to a Schedule C, which will raise my tax liability unless I move the associated expenses (which of course were for a rental property) over to Schedule C.  I think doing this would be wrong and would not accurately reflect the reality of the proper accounting.

Can anyone tell me the proper place for these items to be reported on the 1099-MISC?  Am I correct?

Thank you!

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Rob Beland
  • Investor
  • Leominster, MA
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Rob Beland
  • Investor
  • Leominster, MA
Replied

Your property manager is wrong in this case. The IRS says that if you keep all or a part of a security deposit because the tenant caused damage that is considered rental income. The money you spend to fix the damages are expensed in the same accounting period. As far as the utility piece of it, you could very well be charging tenants a higher monthly rent and paying the utilities yourself just as you do with water/sewer. The money they gave you to get caught up is simply rental income and is accounted for during the accounting period you receive the money. You would have already expensed the money you spent on the utility bills during the particular month they were paid. For instance if you paid the electric bill in Dec 2014 that is a 2014 expense with no offsetting income. In January if they repay you, then you have rental income with no offsetting expense. 

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