I got a 1099-NEC for the Rental Assistance (I am a landlord), huge tax implications, should I report under rental income or self employed

[testtaker2]

Hi

I am a landlord and my tenant applied and qualified for emergency rental assistance. I do not use property mgt company. Tenant and I are both individuals and we don't need to issue each other tax forms. 

For simplicity, say for the entire year, Tenant paid $10,000 and county paid $15,000 for annual combined rent of $25,000

Usually I report rental income on Schd E and I added up the total of what the tenant paid together  for the year and report that as Rental Income. I will deduct corresponding expenses like depreciation, interests, etc (This is all captured in Schd E)

However, for this year, because the county paid me $15,000 to cover the tenant during emergency rental assistance, I got a 1099-NEC from them. Turbotax is asking me to put the 1099-NEC under Self Employed (Schd C). As a result, even though I decrease the corresponding amount on Schd E (Rental Income), I am going to be taxed extremely harshly on the 1099-NEC, (eg I would have to pay medicare, ss, etc like a regular income)

Eg before it will be $25K in rental income on Schd E, this year, should it be $25K in rental income (adding both county+tenant portion), or as Turbotax suggested for 1099-NEC, $10K in rental income and $15K in self reported income?

Question: Why is this the case? Can I just report the total rental income of $25K on Schd E, and skip 1099 NEC (it all factor into gross income anyway), or would I have to enter $10K on rental income and $15K on 1099-NEC? seems rather unfair, the tax difference is close to $5K.

Thanks!

[Carl]

Can I just report the total rental income of $25K on Schd E, and skip 1099 NEC

Yes. But you still need to contact the issuer of the 1099-NEC and have them issue you two documents.

- A "corrected" 1099-NEC showing all zeros.

- A 1099-MISC with the rental income reported in box 1.

A 1099-NEC "can" "not" be used for reporting passive rental income.

You can refer them to the instructions at https://www.irs.gov/pub/irs-pdf/i1099mec.pdf where on page 4 in the 2nd column it states, "Public housing agencies must report in box 1 rental assistance payments made to owners of housing projects. See Rev. Rul. 88-53, 1988-1 C.B. 384."

They are apparently not reading the two paragraphs before that statement, which lets it be known they're referring to box 1 of the 1099-MISC, and not the 1099-NEC.

[Hal_Al]

If you received an erroneous 1099-NEC (and you did); You have several choices:

1. Ideally, you get a corrected 1099-NEC from the payer, as described by Carl

2.  Attach a copy of the 1099-NEC and a statement explaining the circumstances. You can't e-file. From the IRS instructions for form 1099-Misc: Form 1099-MISC incorrect? If this form is incorrect or has been issued in error, contact the payer. If you cannot get this form corrected, attach an explanation to your tax return and report your income correctly (schedule E in your case).

 3.  Report the income on Schedule E.  Then report it again  as other income on line 8z, Schedule 1.     

      -Enter in TurboTax at the 1099-NEC screen

      -At the screen titled "Do one of these uncommon situations apply", select "sporadic activity' 

   Then enter a line 8z deduction, for the same amount.  In TurboTax (TT), enter at:

- Federal Taxes tab
 - Wages & Income
       Scroll down to:
           -Less Common Income
                 -Misc Income, 1099-A, 1099-C
                      - On the next screen, choose – Other reportable income -  Answer yes to Any other Taxable                                         Income

                       -On the next screen, Enter the number with a minus sign (-) in front.  Briefly explain at

                           description  (e.g. rent on 1099-NEC reported on Sch E_

4. Do nothing other than report the income on Schedule E and hope you can explain it away when & if the IRS contacts you