If there are any BP Tax Professionals that can help I would really appreciate it - my accountant isn't sure on this one. I've made a blunder in not comparing the 1099 from my Property Management (PM) company to the P&L. After pouring over past returns, I've found that the 1099-Misc (Box 1, Rents Received) is populated with the net rents they pay-out to me after expenses. Isn't this supposed to be gross rents (then I deduct all my expenses on my Schedule E)? I've been researching to determine if I've missed expense deductions, but if my PM is already taking expenses out, does it matter if I go back and itemize? Thanks!
Not intended to be tax advice but I will give my thoughts. I am not a tax expert. Just giving thoughts
yes, the PM is supposed to indicate gross rents and you itemize the expenses, including his fee.
What I would do (not recommending what you should do) would depend on if you also deducted those expenses. If you did not, I would leave the past returns alone since tax-wise there is no difference. If the IRS sends you a note asking about this, I would then correct all the forms. Since there will be no additional tax due, there should not be any penalties.
However, if you also deducted the expenses so the expenses were, in effect, deducted twice, I would correct all past forms.
In either case, do it properly going forward. Ask the PM to correct their form but even if he doesn't, you should report the actual rents received on schedule E line 3
Not a tax expert and this isn’t advice but yes In my experience your 1099 should have gross rents on it.
Should be gross rents with a end of the year financials which spells out your expenses for the year for your tax return deductions
The 1099's provided by your property management company should be gross rents.
However, this should be something you can easily verify.
Don't you know what the monthly rent is for the property that are being managed? You can multiple it by 12 to see if it is close to the number reported on the 1099 issued to you(assuming no vacancy).
Some expenses that a property management company may make on your behalf are repairs, improvements and utilities. In addition to the fees that your property management makes - you are also responsible for paying real estate taxes, mortgage interest and property management fees.
Your accountant should have a good understanding of the real estate investing business and be able to see if the numbers provided to you appear accurate.
Everybody is talking about what the PM should do or, rather, should have done. Yes, they're supposed to report gross income.
But you know what - it does not matter for you! Here is why.
Let's say (oversimplified, of course) that your PM collected $12,000 in rent on your behalf, paid $8,000 in expenses, held back $1,000 for their services, and released the remaining $3,000 to you.
Whether they reported on 1099 $12,000, $4,000 or $3,000 - does not change how YOU report it on the tax return:
- $12k rent
- $8k expenses (categorized, of course)
- $1k management fees
- $xx additional expenses paid directly by you
- $yy depreciation
Once again, the PM should report $12,000. Whether they did or not - you should also report $12k - no matter what is on 1099 or even no 1099 at all.
Thank you for the replies. I've verified all numbers and nothing is being double counted, but the Schedule E doesn't reflect detailed accounting of expenses. Probably a good idea to correct that going forward. Appreciate the help!
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