1099s for Rental Property

[Bob Oaks]

I'm having a minor dispute with the property management
company that handles a rental property we have in Hawaii. I
am trying to get them to stop sending 1099s at the end of
the year. This property is jointly owned, and when we get
only one 1099, my tax accountant has to jump thru hoops to
explain one 1099 for two separate returns. For another
rental property here in California, the property manager
stopped sending out 1099s many years ago and says it is not
required by the IRS since we are not his employees. Anyone
have any comments?

 

[Ron Rosenfeld]

I'm having a minor dispute with the property management
company that handles a rental property we have in Hawaii. I
am trying to get them to stop sending 1099s at the end of
the year. This property is jointly owned, and when we get
only one 1099, my tax accountant has to jump thru hoops to
explain one 1099 for two separate returns. For another
rental property here in California, the property manager
stopped sending out 1099s many years ago and says it is not
required by the IRS since we are not his employees. Anyone
have any comments?

I have no idea whether or not the property management
company is supposed to send you a 1099.

I'm in a similar position, although the party sending me a
1099 is the lessee directly. It takes me about three to
four minutes each year to make up a 1099 to send to my
partner. The procedure regarding nominee income is clearly
described in the IRS instructions for 1099's. If your
accountant is charging you big bucks for this service, that
seems strange to me.

All he has to do is fill out a 1099 (and the information
form -- can't recall the number) of the same flavor as the
one you received, and send it to your partner with you as
the payor, and your partner as the recipient. He just cuts
the amounts shown on the form you receive in half.

--ron

 

[Phil Marti]

I'm having a minor dispute with the property management
company that handles a rental property we have in Hawaii. I
am trying to get them to stop sending 1099s at the end of
the year. This property is jointly owned, and when we get
only one 1099, my tax accountant has to jump thru hoops to
explain one 1099 for two separate returns.

I have two suggestions. If the property manager is sending
the money to two places and issuing only one 1099, tell them
to clean up their act. If they don't, find a new property
manager.

If all the money is coming to you and you pass it on to the
other owner, find a new accountant. It takes about 5
minutes to prepare a 1099-MISC and 1096 for the nominee
distribution. I'd hardly call that jumping through hoops.

Phil Marti
Topeka, KS

 

[Joanne]

I'm having a minor dispute with the property management
company that handles a rental property we have in Hawaii. I
am trying to get them to stop sending 1099s at the end of
the year. This property is jointly owned, and when we get
only one 1099, my tax accountant has to jump thru hoops to
explain one 1099 for two separate returns. For another
rental property here in California, the property manager
stopped sending out 1099s many years ago and says it is not
required by the IRS since we are not his employees. Anyone
have any comments?

The company that issues the 1099 is doing so correctly
unless you and the other owner are incorporated and the
corporation owns the property, in which case a 1099 is not
required.

It really isn't a great deal of trouble to show 50% of the
1099 income received by a different social security number
on your tax return.

1099's are not issued to employees unless they have received
a type of income specifically reported on a 1099. You may
want to read the instructions for preparing a 1099MISC,
available at http://www.irs.gov which will give you a better
understanding of who receives them and under what
circumstances.

A much more complex solution is to file a 1065 for your
joint venture, have the 1099 issued to the FEIN you will
apply for and issue a K-1 to each of you. What you are
currently doing is far less work.

 

[Gene E. Utterback, EA]

I'm having a minor dispute with the property management
company that handles a rental property we have in Hawaii. I
am trying to get them to stop sending 1099s at the end of
the year. This property is jointly owned, and when we get
only one 1099, my tax accountant has to jump thru hoops to
explain one 1099 for two separate returns. For another
rental property here in California, the property manager
stopped sending out 1099s many years ago and says it is not
required by the IRS since we are not his employees. Anyone
have any comments?

I believe your Hawaiian management company is correct.
Because they pay you in the course of their trade or
business they need to issue the 1099.

I am a tax accountant and have been for over 20 years. I
don't know what "hoops" your accountant says he has to jump
through but this is "stroke of the pen" stuff. All he has
to do is to claim a deduction on your Schedule E for the
portion of the 1099 you pay to the other owner. He would
claim this the same as if he claimed Associate Fees or
Office Expenses. On the other return he simply picks up the
income. There is NO REASON for him to have to explain
anything to anyone. In my experience no one really cares
and seldom does the issue ever come up except under audit,
and then it is an easy explaination - especially if the
expense on your return is something like "share rents
reported by SSN 123-45-6789."

Gene E. Utterback, EA

 

[Harlan Lunsford]

I'm having a minor dispute with the property management
company that handles a rental property we have in Hawaii. I
am trying to get them to stop sending 1099s at the end of
the year. This property is jointly owned, and when we get
only one 1099, my tax accountant has to jump thru hoops to
explain one 1099 for two separate returns. For another
rental property here in California, the property manager
stopped sending out 1099s many years ago and says it is not
required by the IRS since we are not his employees. Anyone
have any comments?

Yes. Both of them are wrong.

1099-misc forms, or substitutes thereof are required if the
gross rentals exceed 600$. The California manager is
supposed to send them; 1099's do not depend on having
employees or not.

The Hawaii fellow however, should be notified formally about
the joint ownership and furnished W-9 forms from each of you
with the stipulation, request, plea..... that half of gross
rents should be reported to each of y'all.

Cheer$,
Harlan Lunsford, EA in LA

 

[Bob Oaks]

I have no idea whether or not the property management
company is supposed to send you a 1099.

I'm in a similar position, although the party sending me a
1099 is the lessee directly. It takes me about three to
four minutes each year to make up a 1099 to send to my
partner. The procedure regarding nominee income is clearly
described in the IRS instructions for 1099's. If your
accountant is charging you big bucks for this service, that
seems strange to me.

All he has to do is fill out a 1099 (and the information
form -- can't recall the number) of the same flavor as the
one you received, and send it to your partner with you as
the payor, and your partner as the recipient. He just cuts
the amounts shown on the form you receive in half.

Oh I realize it's a relatively simple matter for my
accountant; it's just an annoyance. The 1099 shows all the
rent as my income; he makes a copy of it and includes it in
both returns. Explained or not, it provides an opportunity
for the IRS to get confused. It's not a 50-50 split. With
our other rental property, the manager does not send a 1099
at all. I simply use the December year to date figures that
I get and then spread them appropriately for our accountant
to report on Schedule E. There is no possiblilty of
confusion due to a discrepancy between what is shown on the
1099 and what is shown on the Schedule. For another rental
property, which we know longer own and for which we had yet
another property manager, they sent each of us a 1099,
dividing the rents according to the percentages I gave them.
That made things easier, but it was probably a violation of
the IRS rules.

 

[Ron Rosenfeld]

All he has to do is fill out a 1099 (and the information
form -- can't recall the number) of the same flavor as the
one you received, and send it to your partner with you as
the payor, and your partner as the recipient. He just cuts
the amounts shown on the form you receive in half.

My last sentence could be misinterpreted.

The amount he shows on the 1099 you send your partner is 1/2
the amount shown on the 1099 the rental company sends you
(assuming you are equal partners). (That amount would also
be shown as a deduction for you on your Schedule E).

--ron

 

[Ron Rosenfeld]

Oh I realize it's a relatively simple matter for my

accountant; it's just an annoyance. The 1099 shows all the
rent as my income; he makes a copy of it and includes it in
both returns. Explained or not, it provides an opportunity
for the IRS to get confused. It's not a 50-50 split. With
our other rental property, the manager does not send a 1099
at all. I simply use the December year to date figures that
I get and then spread them appropriately for our accountant
to report on Schedule E. There is no possiblilty of
confusion due to a discrepancy between what is shown on the
1099 and what is shown on the Schedule. For another rental
property, which we know longer own and for which we had yet
another property manager, they sent each of us a 1099,
dividing the rents according to the percentages I gave them.
That made things easier, but it was probably a violation of
the IRS rules.

From what you write, it sounds as if your accountant may be
doing it incorrectly. As I understand it, he should be
issuing a 1099 (in your name) to your partner for the amount
of nominee income (income that belongs to your partner)
shown on the 1099 which you received.

There should be no confusion on either Schedule E. In your
case, you show as income the full amount shown on the 1099,
and the nominee income as an expense.

In your partner's case, he shows as income the amount on the
1099 which you sent to him.

There is also no need to include the 1099 on the paper you
send to the IRS.

--ron

 

[scott s.]

The Hawaii fellow however, should be notified formally about
the joint ownership and furnished W-9 forms from each of you
with the stipulation, request, plea..... that half of gross
rents should be reported to each of y'all.

Sounds like good advice, but it may involve some
complication as I assume the Hawaii prop manager is also
paying the state GET on the rents, and if he splits the
gross rent between two owners he may have to get a second
GET ID for you and make two GET returns.

(For non-Hawaii readers, Hawaii does not have a retail sales
tax except for certain items like gas, smokes, or booze,
instead, invokes a gross receipts tax on virtually any
transaction.)

scott s.

 

[Gene E. Utterback, EA]

Oh I realize it's a relatively simple matter for my
accountant; it's just an annoyance. The 1099 shows all the
rent as my income; he makes a copy of it and includes it in
both returns. Explained or not, it provides an opportunity
for the IRS to get confused. It's not a 50-50 split. With
our other rental property, the manager does not send a 1099
at all. I simply use the December year to date figures that
I get and then spread them appropriately for our accountant
to report on Schedule E. There is no possiblilty of
confusion due to a discrepancy between what is shown on the
1099 and what is shown on the Schedule. For another rental
property, which we know longer own and for which we had yet
another property manager, they sent each of us a 1099,
dividing the rents according to the percentages I gave them.
That made things easier, but it was probably a violation of
the IRS rules.

Now you've changed what you said earlier. First your
accountant had to jump through hoops - which implies that
there is some difficulty in conforming reporting to what
actually happened - and now you say it's a relatively simple
matter but just an annoyance. You really do need to make up
your mind.

Also, the ONLY time a 1099 should be attached to a tax
return is when it shows withholding. If your accountant is
attaching the 1099 routinely because he thinks it is
necessary you should look for someone a bit more
experienced. Which brings me to another question, since you
have, or have had, rental properties in multiple states -
are you filing returns for ALL the states? I ask this
because if your accountant believes that a 1099 must be
attached to a tax returns along with a detailed explaination
of what actually happened you may have other problems on
your returns that you are not aware of.

Good luck,
Gene E. Utterback, EA

 

[Dave Woods, EA]

Been thinking about this issue - doesn't the orginal poster
really have a partnership here. Be it a handshake
partnership. I know I do it on occassion and show the
schedule E's seperately but in reality they should probably
be filing a 1065 return.

Well a partnership is not required for multiple ownership of
a rental property.

--
David M. Woods, EA
Boston, MA 02109

Postings here are general information only and not to be
relied upon as advice.

 

[Ron Rosenfeld]

Been thinking about this issue - doesn't the orginal poster
really have a partnership here. Be it a handshake
partnership. I know I do it on occassion and show the
schedule E's seperately but in reality they should probably
be filing a 1065 return.

There is an exception that frequently applies.

From Pub 541: "... co-ownership of property maintained and
rented or leased is not a partnership unless the co-owners
provide services to the tenants".

--ron

 

[Dave Woods, EA]

Joanne wrote:

I didn't think payments to partnerships required a 1099, but
I admit I haven't checked lately.

Only corporations are exempt from receiving 1099s.

--
David M. Woods, EA
Boston, MA 02109

Postings here are general information only and not to be
relied upon as advice.

 

[Joanne]

Joanne wrote:

I didn't think payments to partnerships required a 1099, but
I admit I haven't checked lately.

Partnerships are not exempt.

--
Sincerely,
Joanne

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[D. Stussy]

Well a partnership is not required for multiple ownership of
a rental property.

Although true, it's really a pain in the %ss for the IRS
when they want to adjust the rental activity by examination
.... but only do so for ONE of the owners. I've never had
this issue as a practitioner, but I have had it as an IRS
employee.

Perhaps one day, the IRS will add a check-box for
multiply-owned rentals to Schedule E.