Does income recieved as reimbursement for damages to a rental property qualify as 1099_MISC income?

[bee_nice]

listed on box 3 of 1099_MISC received from property manager, but on statement of cash flows it shows up a cleaning and maintenance income. We had to spend twice that amount to repair all the damage.

[DianeW777]

Include the income as part of  your rental activity income and then deduct the expenses used to repair the property. This will provide the net results necessary for your rental activity. It's not necessary to enter the income through the 1099-MISC entry area, simply include this as part of your rental income on Schedule E. 

You have your form and your records should you need them at any future point.

[DonCatrow]

The reimbursement for damages needs to be reported. 

The way I handle it is to include 100% of the costs to repair the damage on Line 14. Repairs.

The 1099-Misc. amount I report as a negative number, i.e. <xxx> on Line 19 Other Expenses. Name it: "Insurance Reimbursement".

The reason to report the reimbursement on Schedule E (rather than as Misc. Income) is to reduce your Schedule E loss in case you are getting close to the $25,000 in losses deductible for non-professional landlords.

There is an additional consideration. The IRS could deem that the repairs have increased the value of the property, in which case the costs should be capitalized. I would then argue that the repairs didn't even restore it to its former glory. Just be thankful you were reimbursed at all for the poor behavior of your renters. I hope you also kept their security deposit.