So here is the scenario....Utility bill comes to my address (these specific utilities are in my name), I pay for them so that they are on time with no late fee. The next month the tenants reimburses me. Wouldn't the reimbursement from the tenant be considered "income" and I would have to pay taxes on that? If not how would i classify these transactions for tax purposes?
From my understanding, any payment your tenant makes to you is considered as income. Even payments for background checks. At the end of the day, better be safe than sorry. So just report it on you taxes and also report the utilities you paid for as ordinary and necessary expenses.
Report reimbursements as income and then your payments as utility expense - resulting in a wash. No additional taxes, and no IRS flags.
It will be a wash- You'll show income of $50 (from the tenant) and an expense for $50 (to the utility company).
If you'r using quickbooks you can classify it as an income account titled "Utility reimbursement" and post it as other income on your taxes so it's not just lumped in with "rent"- this will help you realize actual rental income.
And then you'll report the payments you make to the utility companies as a regular expense titled "utilities".
It will have no tax impact- you're taxed on the net income, not cash collected.
At the next lease signing you may want to consider doing things differently. You could make the tenants paying the electricity their responsibility and require that the bill be placed in their name(s) on the lease. Then notify the electric company that you are the landlord so that you will be notified before the electricity is turned off. If the tenants pay late it will be their responsibility to pay the fees and you will not have the headache of chasing after them for the money. I have done this with our rental and the electric bill has always been paid. If the lights were to be turned off we would then pay it but that has not happened yet. We also did the same thing with the water bill.
I guess i was confused in the sense that if I pay and I get reimbursed from the tenants, its a wash until tax time when that income is now taxed at the appropriate level. So in the end I would be paying the taxes on the utility bill income but the tenant would of obviously only gave me the amount of the utility. But you guys are the experts :-) and it makes sens that its net income and not cash collected.
Amy, I will definitely do that. I was cautious as a utility such as water is lienable on the home if not paid.
I own a SFR in Allentown and yes you are right. The water/trash bill can be liened against your property. What I did was to have the bill come to my house and take $100 out of the rent, put it aside for the water. You don't want to leave THAT utility for the tenant because you won't realize you have a lien against your property until it's too late. For gas and electricity leave that to them to pay becuz they don't get liened against your property. If they don't pay, it gets shut off that's all.
Not sure if you can put water/sewer bill in tenant name in Lehigh Valley. But as noted above, you will be held responsible no matter who's name the bill is in. We pay the bill and add it to their ledger (and send them a copy of it) so that it becomes part of the rent. I do have to count it as gross income when paying the business tax in Allentown. I tried to argue it but they of course did not want to hear it. It was a much bigger expense when I owned group homes and all the utilities were in my/company name. It's a small percentage now but unfair: why should I have to pay any tax on money that is not technically rental income and just an accounting service provided to the residents.