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Join nowIt is my understanding that a Property Management Company must send a 1099-MISC for GROSS income even if only a portion of the gross income was sent directly to an individual property owner (i.e. NET income for the individual is not reported on the 1099-MISC).
What happens if part of the income from Property Manager to Owner is sent via a Payment Settlement Entity (PSE) that issues a 1099-K? Does Property Manager issue a 1099-MISC for the difference? That is, PSE reports net income sent to owner and Property Manager reports 1099-MISC for essentially all the expenses paid for by Property Manager in order for 1099-K and 1099-MISC to add up to Gross Rents?
Example:
$1,000 Monthly Rent collected by Property Manager
–$100 Property Management Fee
–$100 Monthly Miscellaneous Expense
= $800 NET MONTHLY INCOME sent electronically through a PSE.
Therefore:
$12,000 Gross Annual Rent collected by Property Manager
$9,600 ($800*12) Net Annual rent sent to Owner via PSE, reported on 1099-K by PSE
$2,400 ($200 expenses*12) remaining Gross Rents reported on 1099-MISC
Lastly, Owner reports on Tax Return:
$9,600 1099-K income
$2,400 1099-MISC income
$12,000 GROSS INCOME
—$2,400 Expenses paid for by Property Manager
—$X,XXX Any other expenses owner incurred.
$X,XXXX Net Income Reported by Owner
Let me correct your understanding. According to the instructions for 1099MISC you only report NET rent paid to owner. In your example only 800/month or 9600 is on 1099MISC. If you pay by PayPal or credit card or other method covered by 1099-K you send nothing.
The owner reports, on Schddule E, gross rent 12000, expenses of any nature including 1200 property management fee and other deductions.
Nothing has to add up formwise.
And you could avoid 1099 at all by depositing all rents directly into owners account instead of your own and then bill them back for pm and other expenses. Then the owner would give you a 1099 for pm services.
From everything below this paragraph, it shows I'm suppose to send GROSS rents on the 1099. My concern is a 3rd party distributes a 1099-K for the electronic payments fo the NET rent that I send. Do I still need to report Gross Rents or do I report the difference between the Gross Rents and the 1099-K amount? If I do the former, reporting Gross Rents, then the owner would have incorrectly have 1099s for double the income. My accountant said do do Gross and then have owner right as an expense the 1099-K as a double income reporting.
I see on 1099-MISC Instructions that: "...However, the real estate agent or property manager must use Form 1099-MISC to report the rent paid over to the property owner. See Regulations sections 1.6041-3(d), 1.6041-1(e)(5), Example 5, and the instructions for box 1."
So in that paragraph it does say I need to "rent paid over to the property owner." I would assume that means NET rent (after property management fees and other expenses are deducted from rent). HOWEVER, read all the info I'm gathering:
1. This article says Gross (old from 2012 though): https://bradfordtaxinstitute.com/Content/Property-Manager-Reports-Rental-Income1099-MISC.aspx
2. Buildium I read used to give you the option, now requires Gross (click "Box 1 - Rent" to expand details): https://support.buildium.com/hc/en-us/articles/[removed]-How-does-Buildium-calculate-1099-totals-
3. This Inman article also says to bill 1099-MISC as NET RENT however, read the comments where these discrepancies I'm concerned with: https://www.inman.com/2012/02/10/tax-reporting-tips-property-managers/
From comments section:
Justin Gall - I own a property management company that manages approximately 400 unit with 105 clients. We get this question every year by several clients (including CPA's) and it seems as though it was a gray area. After speaking to the IRS, they also referred me to 1.6041-1(f). To help make the decision final, our software company and the other big 3 (Propertyware, Buildium, Rent Manager, & Appfolio) all use the gross rents collected (not net) when producing the 1099's. So that's that--we don't even have the option to decide.
Details from 1.0641: https://www.law.cornell.edu/cfr/text/26/1.6041-1#a_1_i_B
Also explained on: https://rentables.com/services/property-management-software/posts/do-property-managers-need-to-send-...
(f) Amount to be reported when fees, expenses or commissions are deducted -
(1) In general. The amount to be reported as paid to a payee is the amount includible in the gross income of the payee (which in many cases will be the gross amount of the payment or payments before fees, commissions, expenses, or other amounts owed by the payee to another person have been deducted), whether the payment is made jointly or separately to the payee and another person. The Commissioner may, by guidance published in the Internal Revenue Bulletin, illustrate the circumstances under which the gross amount or less than the gross amount may be reported.
I found this paragraph... the only paragraph I can find online that answers my concerns. It does say I shouldn't report Gross rent on the 1099... but still doesn't show if I need to report the different between 1099-K and 1099-MISC... since I'm suppose to report Gross Rents per above post.
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