A property management company who handles several of my clients always sends a 1099-misc report with odd rent reported, like $11,061.78. That's because they report the net amount they sent the landlord. So my Sch E looks weird -- no repairs, small gross, no commission, no insurance. I've spoken with them and they insist that a top NYC CPA assured them that's the correct way. Is it?
" top NYC CPA " -- oxymoron? Reminds me of the one who overlooked a five-figure Section 199A deduction for several years before the 2018 law change.
If the tenant were filing the form, it would show the gross rents. Is the management company the agent of the tenant? In most places, they are the agent of the landlord, but New York does things differently. In the real world, real estate agents aren't always used in residential rental leases, but apparently in New York it's considered a necessary expense.
The Regulations to Section 6041 tell us:
(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.
--so maybe there is some guidiance from IRS on reporting less than the gross amount. Ask a top NYC CPA about it.
I don't have any property management companies that do it that way.
Id report the actual income and expenses, none of this netting BS. If they try to get a loan the bank is going to wonder why theyre charging so little in rents, IRS may wonder as well.
As long as your Rents on Sch E line meets or exceeds the 1099, no issues with IRS cross matching the 1099MISC.
The owner should still have the reporting for Gross vs Net. That's what I am provided with when being asked to help set a system for tracking and audit purposes. Also, the "net" they pay to the Owner and report on the 1099-Misc might not even be the "real net" because I have seen where the property manager keeps an escrow account for the Owner, so that they don't need to dip into their own account to cover repairs, and this is not a trust account and not the same as tenant deposits. I call it the Repair Slush Fund.
"Level Up" is a gaming function, not a real life function.
Right. It takes me more time to interpret the 1099-misc reports, and ask the client to ask the property mgr to also produce detailed information. I have not been able to convince the property mgr to report info otherwise, so it is what it is.