1099-K Issue

[Adam07]

This is for a rental property that is sent up in TurboTax as a Schedule E. In prior years when I had a property manager collect rent, I was getting a 1099-MISC from them to record rental income. In 2024, I decided to manage the property myself and am using an on-line payment portal to collect rent and therefore now got a 1099-K. Unfortunately because 2024 1099-K reflects "payments processed" (not necessarily real income), it included the security deposit the tenant paid along with 1st months rent. I am assuming, I should not include the security deposit in my Schedule E input of income since this is money I am holding on behalf of the tenant until their lease ends in 2025.  But I am wondering will this raise a red flag with the IRS since Schedule E wont reconcile with the 1099-K they have on record for me?

[JamesG1]

If the IRS form 1099-K reports $10,000 in rental income and $1,000 for the tenant's security deposit, consider this approach.

Report the full $11,000 IRS form 1099-K income but report an additional expenditure line titled '1099-K in error' or similar for the $1,000 for the tenant's security deposit.

This method would report the full IRS form 1099-K amount but still accurately reflect rental income and expense.

In any case, retain a record in your tax files of how the income was reported, should a tax authority have questions at a later time.

[Adam07]

Thanks, that makes sense.