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Do I need to issue 1099-MISC to my investment rental property manager?

Forum|Forum|7 years ago
May 31, 2019
4 replies
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I have a property management company that manages an investment condo rental I own. Let's say they collect $10,000 total in rent for the year. Let's say they keep $1,000 total for the year for fees/commissions, and disburse the rest ($9,000) to me. At the end of the year, they issue me a 1099-MISC form showing an income (to me) of $9,000.

That all seems straightforward. But, do I need to issue them a 1099-MISC showing income (to them) of $1,000 (since it is over $600).

In TurboTax, it asks if I need to issue a 1099-MISC to anyone and it lists a common example as "Property Management". So, I have paid $1,000 aggregate to a property management company in 2014. Do I issue them a 1099-MISC? I see lots of other answers on TurboTax saying that investment property owners don't need to issue 1099-MISC forms at all. So, why is TurboTax asking me if I need to if everyone seems so clear that the answer is no.

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Best answer by CalCountry

The key is that TurboTax does not already know if you must send a 1099-MISC. The answers to questions surrounding whether you must issue a 1099-MISC are not always absolutely clear.

Unless you are in the business of renting properties, the payments you make to your rental property manager are not what the IRS publications refer to as "in the course of your business or trade." That implies unless you're in the rental business, you do not need to give a 1099-MISC to your property manager any more than you need to give one to the neighborhood kid who mows your home's lawn. Additionally, if the property manager is a corporation, you are exempted from having to issue a 1099-MISC to them.

However, the property manager will send a 1099-MISC to you (and you will need to report that as income), since that is a payment to you made in the course of the property manager's "business or trade." I also presume the property manager "passes through" to you any expenditures for your property(ies) that you pay in order for you to include them as rental property expenses.

There's an interesting discussion of the difference between rental activity as a business versus an investmnent at nolo at:
http://www.nolo.com/legal-encyclopedia/is-your-rental-activity-business-investment.html

(See also the additional later commentaries, below)

CalCountryAnswer

Level 6

The key is that TurboTax does not already know if you must send a 1099-MISC. The answers to questions surrounding whether you must issue a 1099-MISC are not always absolutely clear.

Unless you are in the business of renting properties, the payments you make to your rental property manager are not what the IRS publications refer to as "in the course of your business or trade." That implies unless you're in the rental business, you do not need to give a 1099-MISC to your property manager any more than you need to give one to the neighborhood kid who mows your home's lawn. Additionally, if the property manager is a corporation, you are exempted from having to issue a 1099-MISC to them.

However, the property manager will send a 1099-MISC to you (and you will need to report that as income), since that is a payment to you made in the course of the property manager's "business or trade." I also presume the property manager "passes through" to you any expenditures for your property(ies) that you pay in order for you to include them as rental property expenses.

There's an interesting discussion of the difference between rental activity as a business versus an investmnent at nolo at:
http://www.nolo.com/legal-encyclopedia/is-your-rental-activity-business-investment.html

(See also the additional later commentaries, below)

S

surgeon92Author

Level 2

Thanks CalCountry. After digging around the internet more, I think I would determine that I do need to send a 1099-MISC to my rental management company for "services rendered". The rental properties I own I do unofficially treat as a "business" I run. That is, I own the rental properties primarily for the purpose of making profits. Therefore, the rental management fees I pay to the rental management company would be "in the course of my trade or business".

F

fernjunk

Level 2

I've looked into this in depth and believe you do not need to send your property manager a 1099.

Note the 1099 your property manager sent you should have shown $10k in rental income (total collected not the amount disbursed).

Your Schedule E should account for the $1k in management fees.

See [external link removed] for an indepth post with references to the appicable IRS code.

T

TurboJake

Level 2

@fernjunk Thanks for your clarification. I would love to see the article you posted about not requiring the property owner to issue a 1099-MISC to the property manager, but unfortunately the external link was removed.

Can you try to provide the link again or a hint at where to find the article you were trying to post?

IsabellaG

Level 13

@TurboJake, perhaps this discussion will help. Back in 2011, the Small Business Job Act included a requirement which would have treated all rental properties as a business and required owners to issue 1099's to contractors, including property managers. But the law was repealed, so this is not a requirement for any owner who is not in the business of renting properties. Here is a link to the Journal of Accountancy article that came out at the time.

[Edit 12/23/2019]

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P

pecosita-1

Level 2

Good answer. But what about a prop management company that sends a 1099-Misc showing a combined amount of income from 3 rentals. TTax won't let me divide up the amounts. It lists the entire amount as income from 1 house. How do I apportion it? Help!

CalCountry

Level 6

Here's a solution:
Assume you have properties A, B, and C.
a) Enter the 1099-MISC just as you received it, but enter only the Property A information, and only its proportionate share of rental income.
b) Then create a "substitute 1099-MISC" with the information and proportioned rental income for Property B.
c) Then create a "substitute 1099-MISC" with the information and proportioned rental income for Property C.

The process for creating a substitute for a form you did not receive is in Djay43's answer in the following thread:
<a href="https://ttlc.intuit.com/questions/2635641-how-do-i-file-1099-misc-without-a-1099-misc" rel="nofollow" target="_blank">https://ttlc.intuit.com/questions/2635641-how-do-i-file-1099-misc-without-a-1099-misc</a>
(Of course in contrast to those instructions, instead of reporting the income as "miscellaneous income," you would create 1099-MISC's with the income as rental income.)

KathrynG3

Level 14

@Kayla-borg LLC's do not receive 1099-MISC.

Please see this IRS link regarding Form 1099-MISC.

S

spammernaut

Level 2

I used a property management company in 2019, and they sent me a 1099-MISC form. However, it includes 100% of the RENT they COLLECTED, not merely what they paid me. They included on the 1099-MISC the commissions they kept, which seems improper to me. I never collected a dime directly from their tenant. They retained their commission and paid me only the difference (i.e. 92% of the total rent they collected each month). How do I deal with this situation? I read that I am not supposed to 1099 them, but I am NOT paying taxes on their income!

AmyC

Level 15

You put in all the income and then expense off their commissions and fees that they kept. You will not pay tax on the income since it is subtracted. @spammernaut

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