1099-MISC Rental Income and Box 3 "Other Income"?

Question

This is my first full year as a rental property owner, and I am doing my own taxes. I received a 1099-MISC from my property manager showing the expected amount in Box 1 for rental income, and about $1200 in Box 3, "Other Income." The property manager tells me this amount is for utilities collected from the tenant. (Owner covers water and garbage.)

Turbotax will not account this as rental income, and wants to count it as self-employment income on Schedule C. This is increasing my tax liability.

Based on everything else I have read, and what my property manager tells me, money from the tenant for utilities that I pay for is still considered rental income as far as the IRS is concerned. The amount paid by us for water and garbage is certainly included as an expense for the property.

Should my property manager issue a corrected 1099? If they don't, can I adjust the numbers by deducting that box 3 amount from my expenses and also not reporting the Box 3 as income? I worry about that kind of self-help because the IRS received the 1099 and my return won't match their numbers.

Any insights appreciated. Thanks!

Muhammad Talha · Answer

Your PM reported it wrong. Utility reimbursements are rental income, period. That $1200 belongs in Box 1 not Box 3. Request a corrected 1099 first before doing anything else. If they won't fix it, report it on Schedule E as rental income and attach a short explanation to your return, IRS allows this. Thepaystubs.com helped me keep my income records organized when I dealt with something similar first year.

Hjiorst Fjioords · Answer

Hooray! I received an answer from my property manager (finally), and my feelings were validated! Here's what they said:

"...you are correct. The utility income should be included in Box 1 for rental income, as it is income coming directly from the tenancy. [The accountant] said that it could be in Box 3 for Other Income, but it is technically incorrect and should be corrected."

So I got a corrected 1099-MISC and the problem is solved. I am including this information here because, like I said, I saw this discussed elsewhere on the internet but never saw a definitive answer. If this happened to you, contact your property manager and request a corrected 1099-MISC.

Hjiorst Fjioords · Answer

FYI: I did hire a professional, experienced accountant to do my taxes last year, explicitly regarding my real estate investment. This was so I could do my taxes properly in the future. I am confident that this year, this question notwithstanding, I got it right.

However; last year, with only two months of ownership, box 3 had $100 dollars in it. Fortunately, the effect was negligible. I did not closely at that 1099-MISC, and my accountant did not bring that number up, and I don't know how he handled it.

So, I do appreciate the very general & sound advice to consult with professionals. Rest assured that I have already done so throughout my experience in real estate. I would not even mention this, but I don't understand why one would assume I didn't do this.

I am also confident that the answer to this question - even though I do not know it now - is simple: "Did the PM fill out my 1099-MISC correctly?" It is either a yes or a no.

And, yes, I understand that one can only give their own understanding or experience on the topic. That is exactly what I am seeking. This is a specific question about a specific box on a specific form, and there does not seem to be a general consensus on it when I look around the internet. I am seeking as much input and experience as I can gather (before I call the IRS or my accountant). It's something I like to call "research."

I ask that anybody who has had this experience or who knows the answer please share your thoughts.

Thanks!

Justin Kane · Answer

i highly recommend hiring a real estate professional cpa to help you with your taxes will save you THOUSANDS to MILLIONS over time

Mark H. · Answer

Call Turbotax and ask. They do provide support.

Carolyn Fuller · Answer

@Hjiorst Fjioords I recommend having a tax accountant do your tax returns.

I don't use Turbotax but I do use Quicken. I suspect Quicken is a lot more flexible than Turbotax. I'm able to put all of my rental income and expenses into Schedule E such that it matches all the various 1099 forms I receive. I turn everything over to my accountant and I am confident my returns are accurate.

Basit Siddiqi · Answer

@Hjiorst Fjioordsit seems like you may have to report the income reported on 1099-MISC line 3 on schedule E.If you get a notice from the IRS - you can explain your situation.Are you confident that you prepared your return accurately?Figuring out basis and depreciation can be complicated for a landlord who is not a tax professional.

1099-MISC Rental Income and Box 3 "Other Income"?

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