I have read, but want to confirm that I can report forgiven rent payments from a tenant as income to the IRS. The tenant moved out and owes me for last month and a half rent plus utilities. Instead of going after them in small claims court (they don't have any money) I would prefer to report it as income to the IRS for them and let the IRS have a chance of getting some taxes out of them.
Have any of you done this? If so, what form did you use to report it?
Loveland, CO · Member since 2008 · 1k+ posts · 123 votes
18y
I've done it, use a 1099, or "substitute 1099".
In all cases what I've done first is send them a letter stating what I will do and that while I may not get any money as a result of reporting the forgiven debt as income, I'll have the satisfaction of knowing that they'll now owe a % of that money to an agency of the government that:
Never forgets,
Never forgives,
Is relentless in collecting,
and that the debt to the IRS is NOT forgiveable in bankruptcy.
I've got a very high collection rate on those letters.
Loveland, CO · Member since 2008 · 1k+ posts · 123 votes
18y
I've done it, use a 1099, or "substitute 1099".
In all cases what I've done first is send them a letter stating what I will do and that while I may not get any money as a result of reporting the forgiven debt as income, I'll have the satisfaction of knowing that they'll now owe a % of that money to an agency of the government that:
Never forgets,
Never forgives,
Is relentless in collecting,
and that the debt to the IRS is NOT forgiveable in bankruptcy.
I've got a very high collection rate on those letters.
Real Estate Investor · Millbrook, AL · Member since 2008 · 68 posts · 34 votes
18y
You can also send the letter of debt forgivnes, 1099 to Social Services (Welfare) or Sec 8 if they are reciepients. The debt release amount will be considered money recieved by them and they will have to repay the govt or lose some current benifet. I have done this in California. It works
Real Estate Investor · London · Member since 2008 · 3k+ posts · 74 votes
18y
Originally posted by "rdoshier8":
Is this something that your CPA will take care of for you?
Thanks
RD
Most all IRS forms are designed for an average person to be able to fill them out. Some of the time it is harder so you might feel otherwise but I think you get my point.
The CPA charges $X per hour. A 1099 is a very short form. As All Cash suggests you would be sending a letter to the ex-tenant long before you actually fill in the 1099. He says many pay up so you never have to file the 1099. The letter is not something for the CPA to be writing.
You can pay a CPA to do just about anything when it comes to filling in IRS forms. It might not be very cost effective.
Get a copy of the IRS 1099 form and decide for yourself if you could figure it out. There are different types of 1099 forms so check the list on this page of the IRS site:
Cancellation of debt (1099-C) sounds like the right form.
http://www.irs.gov/pub/irs-pdf/f1099c.pdf is the actual 1099-C form. The instructions are about 1/2 of a page and the form has very few things to fill in. Most relate to the tenant and the amount plus a few dates.
Property Manager · OK · Member since 2008 · 28 posts · 2 votes
18y
You would not use a 1099-C for this purpose, this form is for financial institutions and gov't agencies.
If you are a cash basis taxpayer, you do not report uncollected rent. Because you do not include it in your income, you cannot deduct it. If you use an accrual method, you report your income when you earn it, therefore you can take a deduction on your tax return.
You do not report the debtor to the IRS on form 1099.
I would suggest going to irs[dot]gov and reading these IRS publications before sending out 1099 forms:
Publication 535
Publication 527
Instructions for 1099A & 1099C
I would include the links, but I'm not able to do so yet.
Real Estate Investor · London · Member since 2008 · 3k+ posts · 74 votes
18y
Rebecka,
Thanks for the advice!
John Corey
Originally posted by "YourVirtualAssistant":
You would not use a 1099-C for this purpose, this form is for financial institutions and gov't agencies.
If you are a cash basis taxpayer, you do not report uncollected rent. Because you do not include it in your income, you cannot deduct it. If you use an accrual method, you report your income when you earn it, therefore you can take a deduction on your tax return.
You do not report the debtor to the IRS on form 1099.
I would suggest going to irs[dot]gov and reading these IRS publications before sending out 1099 forms:
Publication 535
Publication 527
Instructions for 1099A & 1099C
I would include the links, but I'm not able to do so yet.
I would expect that sending a letter to the tenant threatening to file a 1099 is still likely to work with the tenants who care about the IRS. They mostly will not know the fine points highlighted above.