I have a rental property where I have earned escrow interest... there appears to be no obvious way to enter the data against the property

[jh777]

This question was asked elsewhere and marked as solved, but I don't think it has been.

The solution mentioned was to enter it as any other 1099-INT, but it should be added to the property income OR needs to reduce the expenses.

I could see the IRS flagging it if the 1099-INT does not appear in in my 1040.  So I'm not sure how to handle it within TT or from a tax code perspective.

Any suggestion if it is worth trying to find a solution or just claim it as a normal 1099-INT and be taxed on the interest.

[Mike9241 · Accepted solution]

no. it should not be added to the property income, it is portfolio income and as such gets entered on 1099-int.  the IRS doesn't care when you report more income such as interest than what's on the tax forms you receive. this is quite common.

even a traditional schedule C, whose principal activity is not loaning money, that receives interest income on it business a/c's reports the interest on 1099-INT not on schedule C. 

for example, when renting residential real estate you will not get 1099-MISC from the tenants. thus the rental income reported will exceed the rental income reported to the iRS.

[Carl]

Unless you have tens of thousands of dollars in the escrow account, I seriously doubt the interest is enough to make even $1 difference to any tax liability. I also have an interest bearing escrow account for the mortgage on my rental properties. (I have three). All together the interest paid might on rare occasion, exceed $10 for the entire tax year. I just enter it under personal income in the 1099-INT section and press on.

[jh777]

Sorry Mike, I'm not sure I completely get what you are saying.  The 1099-INT would be reported to the IRS, which is why I wasn't sure how I could get around not reporting it.  

I understand that reporting more income than on the various standard income forms is possible and would not raise any issue with the IRS.   I'm asking for the exact opposite, I have rental interest income that would be reported to the IRS but I want it to be applied against a rental loss. 

You got me thinking, I'm kind of viewing this the same as having a brokerage account where you might have cash in an interest bearing account.  That interest would be documented via a 1099-INT but it can't be used against any losses incurred in the brokerage account.

FYI, I don't know how I gained so much interest, but it is in the several hundred dollar range.  The only thing I can think of is that I refinanced near the end of 2020 and the company that was handling the loan was very slow in turning the paperwork around.  So it is possible a large portion of the funds were being held up and bearing interest (I paid down the loan at the same time).  But that means the company managing the loan and the final escrow for taxes were in the same escrow account.  It really doesn't matter, I just have a somewhat large and unexpected 1099-INT gain that was generated by the escrow account.

Also, I found a legal site that seemed to indicate it was possible under certain instances to claim gains/losses in an escrow account but it was too complex for me and would take more time that I wan't to spend to decipher it.

I was hopeful others may have run into a similar situation and found ways to handle it within TT.

[RobertB4444]

@jh777  @Mike9241 and @Carl are both right.  You received interest income due to your financing activities NOT due to your rental property.  Yes, the financing activities only occurred because of the rental property but that isn't how it is treated on your taxes.  This interest income is interest earned on investments and the IRS will expect to see it on schedule B.  It will not show as matching if it is entered anywhere else on the return.

[WDLTAX]

If you are a 1040 filer and receive a 1099-INT that is exclusively interest income on your rental property and your rental property is also reported on Schedule E than report the 1099-INT income on Schedule B.  Otherwise there will be a mismatch with the IRS computers and you will get a letter from the IRS for under-reporting interest income.     I'm a tax accountant and just happened to see this otherwise I'd be too **bleep** busy to reply.  But I thought I'd help you out for free.

Bill