1099 from Property Manager- Other income and Security Deposits

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1099 from Property Manager- Other income and Security Deposits

Adam Ebbers
Member since 2020 · 5 posts · 2 votes

I received my 1099 misc from my property management company and they did a few things that don't seem right. 

First under Other Income (box 3) they listed Security deposit (refundable), pet deposit (non-refundable) and reimbursement for utilities (we had to pay some of the utilities and then have the tenant pay us later). My understanding is that these should all be considered rental income (Box 1)?  In my research this article seems pretty clear that it should be rental income and not other income: https://www.irs.gov/taxtopics/...

Second I am not sure if the refundable security deposit should show as income on the 1099-misc from the property manager. According to the IRS this is not income if it is going to be refunded to the tenant but the PM said they have to report it but I don't have to report it. I am not sure if that is correct and there is a way to note that the deposit amount is not true income when I file and that amount will be removed from the taxable amount? I am pretty sure I can't just report less income then what is sent to the IRS. This is unclear and I can't find anything from the IRS that says how this should be reported by the PM.

Any help is appreciated.

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  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    5y

    Non of these items you described are not for rent, therefore they are not rental income.

    I agree that I don't think a security deposit should be included unless you keep it to cover damages.

    I see why they included the utilities that are reimbursed. You can just deduct what you paid to zero this out.

    I don't use PM's for my LRT or STR properties so I don't have to deal with hassles like this.

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  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    5y

    @Adam Ebbers

    Whether or not they completed the form correctly is not that important. What is more important is how you should treat it on your taxes. You're correct that your tax return must show the same numbers reported on 1099.

    - add up both numbers, Box 1 and Box 3, and report the total as rent

    - deduct utilities you paid as, well, utilities expense. It will be a wash, as it should

    - deduct the refundable security deposit under "other expenses" and call it "tenant deposit adjustment" or something like that. It will also become a wash.

    The end.

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  • Adam Ebbers
    OP
    Member since 2020 · 5 posts · 2 votes
    5y

    @Michael Plaks

    No issue with Box 3 being reported as self employment or reg income and then not showing that on our return? Just not sure how it would be treated if the income numbers don't match exact or if it is ok as long as the total matches? From what I read box 3 links to Schedule C (Business income) instead of Schedule F (Supplemental income), if I group them together is it going to throw up a red flag for the IRS?

    @John Underwood

    From the link above- Rental income includes: Amounts Paid to Cancel a Lease, Advance Rent, Expenses Paid by tenant, Security Deposits. This would make me believe that these amounts should be included in rental income not in "other income".  

    This is the first time using a property manager so haven't had to deal with 1099 from one before and I want to know if they are doing it correctly. 

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  • Account Closed
    Specialist · Charlotte North Carolina · Member since 2020 · 112 posts · 66 votes
    5y

    For future reference, the security deposit should not be on your income and should be held in a trust account. I don't know why your prop manager reported it that way but it should not be reported as income. If it is it would be considered an owner held deposit which at that point should be deposited into a trust account that you have. Speak with your pm about this as it will save you the hassle in the future if they were reporting it correctly on your monthly owner statement and distribution.

    Security deposits are not the landlord's money but are the tenants your just holding it and will be changing back any damages, utilities, and unpaid rent.

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  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    5y
    Originally posted by @Adam Ebbers:

    @Michael Plaks

    From what I read box 3 links to Schedule C (Business income) instead of Schedule F (Supplemental income), if I group them together is it going to throw up a red flag for the IRS?

    There's a small chance that it could. Box 3 does not go on Schedule C but rather on the 1040 itself as "other income" not subject to the self-employment tax. Some accountants may suggest to report it as such, but you then will have a tough time offsetting the refundable deposit portion. My suggestion makes offsetting easy.

    If the IRS ever asks you where the Box 3 income is, you simply point out that it was rolled into the rent income you reported on Sch E, and it should stop further inquiries. Nothing (except hassle) is guaranteed when dealing with the IRS.

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