How do we claim income on a rental property if we are not the owners (quitclaim filing issue)?

[nate-matzer]

We moved out of a rental late in 2016 which was owned by my wife's grandmother.  We were looking to help her get new tenants and she offered to sign the property over to us as quitclaim so we could manage and benefit from the property.

We submitted the quitclaim and started actively renting the house through a management company in July 2017.  However, we found later that the quitclaim was rejected since her grandmother's signature didn't exactly match her name on the old deed (middle initial vs full middle name if I remember right).

We now have a 1099-MISC for the income that we need to file and not sure if we should claim it as Schedule E as owners (since it's not in our name) and not claim depreciation or if we should claim it as miscellaneous income... also not sure how this affects her grandmother's return (does she need to file Schedule E or claim depreciation).

We contacted live help twice but they were less than helpful so far.  I've seen a couple posts and answers on here with similar situations and reasonable answers but wanted to express our specific situation and see if we can get a more informed perspective specific to our issue.

[PatriciaV · Accepted solution]

Yes, you should report rental income and expenses for this Rental Property, even though you were not the legal owners at that time.

Rental activity is reported on Schedule E. The easiest way to find section of TurboTax is to open your return and use the Search box at the top right side of the TurboTax header. Enter "schedule e", hit Enter, then click "jump to schedule e". This will take you directly to the start of this section.

Follow the prompts to set up the property profile, and enter the income from Form 1099-MISC and all related rental expenses. These expenses would include management fees, repair/maintenance costs, and property taxes that you paid.

If you purchased fixed assets for the property (furniture, appliances, etc.), you would enter these under the Assets/Depreciation section. But you would not report the house as a rental asset for depreciation. As you may have read in another post, TurboTax may remind you to enter the home, but you can ignore those messages.

The actual owner would not report any rental activity on her tax return. This property is considered to be a "second home" for tax purposes. If she paid the property taxes, that cost might be deductible if she itemizes her deductions. 

Additional Information

• Where do I enter income and expenses from a rental property?

• What kinds of rental property expenses can I deduct?

• How do I handle capital improvements and depreciation for my rental?

[nate-matzer]

This is incredibly helpful.  Thank you very much Patricia!