I received a 1099-K for my rental property from HomeAway. It looks like they included damage deposits and cleaning fees which will be paid out. How is this handled?

[JulieR]

You will not report the refundable deposits as income on your return this year.  If any portion of the deposits you receive do not get refunded to your tenants, you will report that portion in the year in which that event occurs.  

The 1099-K from HomeAway is just reporting the amount of the credit card transactions they processed.  You need to deduct the deposits you received from the total "income" they are reporting and enter the net amount as "rents received".  Be sure to retain all your rental records that support the reductions you make.

[DiddlyD]

So you even enter the income reported on the1099-K in Turbo tax or just enter your actual rent income as you normally did and just ignore the 1099 entry all together, because it will include those non income refundable deposits.  I even make Cleaning Deposits "Refundable"  which has been very successful (renters are more careful during their stay to reduce their work in the end) and saves me a lot of time getting things ready for the next renter.  

[DiddlyD]

BTW, I use a Rental payment app not Homeaway to process my rental transactions.  They use Chase Bank to facilitate the money transfers and I am told they will report every dollar that went through their system over 600.00 on 1099-K.  This is a real problem for small time landlords trying to automate rental transactions.

[DiddlyD]

I would like to clarify one thing, you can not enter a 1099 with an altered amount less than that in the 1099 slot on the tax return.  I think you just have to ignore the 1099 altogehter and enter the right income as you always did on Schedule E and not co mingle the two.

[Critter-3]

@DiddlyD 

This is NOT an issue ... all income recieved on the rental  and all the expenses are simply entered on the Sch E no matter which accounting program you use.  The NET income is determined on the Sch E which should match your accounting in the end. 

[Carl]

In a nutshell;

All income received for rental property for any reason from any source is reported as rental income. Period. What you enter on the tax return has to match or exceed the total of all tax reporting documents received for that income. If the tax reporting document you received included the tenant's refundable deposit, then you can go ahead and report it as rental income.  Then you can report the deposit as an expense in the expenses section, in the miscellaneous expense section. Just label it something like "Tenants deposit placed in escrow". That way, you don't get taxed on that deposit.

If at the end of the lease or when the tenant vacates, if you refund the deposit you have nothing to report. Howver, if you lay claim to all or any part of that deposit, then it must be included in the rental income.

[DiddlyD]

I understand how Schedule E works and what income is reportable and what is not (excuse me but not all money received electronically is reportable income Eg., Security Deposits which can add up when you have a lot of turn over in tenants.  There is no way to enter 1099-K on Schedule E period (only on Schedule C).  So the 1099-K they will issue me is going to report a lot more money receive into my bank account based on the total of transfer transactions then what I will be reporting on Schedule E as I am required by IRS not to report "Refundable" Deposits" held in trust on behalf of the renter.  Shoot if you use PayPal for rents and merchant business good luck!  I hope IRS has the staff and can afford all the audit confusion this going to cause.

[DiddlyD]

Additionally, putting deposits into a separate account is not correcting the problem please don't muddle the issue with that.  You apparently are not a real tax advisor.

[DiddlyD]

Your attempt at a work around to this problem is just inaccurate as security deposits held on behalf of the renter is never reported as an expense under any circumstances, just because you move it to a separate account or not changes nothing  There is no gray, it's black and white.  I see no other way but to ignore the darn 1099-K altogether and report as I always have on Schedule E with no audits to my name and let sheet hit the fan I guess.

I can't seem to get an intelligent answer to this anywhere.  The only information I keep getting from the payment platforms is the IRS link to the 1099-K for 2022 which states to report it on Schedule "C".   This is for Merchants, Corporations etc.

[Critter-3]

STOP trying to enter the 1099-K in the 1099-K section of the program ... your hitting your head against a wall for no reason.

The income reported on a 1099-K  is simply entered as rental income in the Sch E entry section of the TT program ... look at the input screen and read the FAQ :  

ALSO NOTE ... "last month" & security deposits are not income in the year received  and should not be entered as such UNTIL it is forfeited.     If that is reported on the 1099-K then to keep the IRS happy you can enter the income as reported on the 1099-K form then make a negating entry in the expenses section such as "less security deposit".  And technically those payments from the tenent should not be kept in your checking account but in a separate non interest bearing account meant to house these "escrow" payments and in some states this is a requirement by law ... check your state's rules. 

[happylees]

Thank you very much for the explaination. Just to make sure I understand: 1) there is no need, and no way, to actually enter the 1099-K on Schedule E; 2) for as long as the total rental income reported on Schedule E is at least the amount shown on Form 1099-K, IRS would be happy. Did I get it right?

[Critter-3]

Correct on both counts ... the IRS computer matches up the income reported to them to what you report on your return ... making them match will keep you from getting an audit letter later. 

[DiddlyD]

If you get one of those 1099-K forms from the company that processed your rents electronically ask yourself this;  Do I report my rental income normally on Schedule C or E.  the 1099-K is required to be reported on schedule C not on E, if you report your rental activity on Schedule E, you do nothing with it just keep it with your tax documents in case the IRS should ever question you but is highly unlikely for the small time landlord and based on past tax filings.  You just enter your normal rents minus security deposits held in trust and or refunded, as always if you made any deductions for repairs, unpaid rent, etc to the Security deposit when they move, you count that as income as well as report the repairs as an expense.

[DiddlyD]

you need to check the IRS rules on reporting a 1099-K because it says it is reported on schedule C not E.  Any attempt to force you to report the 1099-K where there clearly is no entry on the 1040 Schedule E worksheet for it, be weary of just entering it and making deductions not allowed for security deposits held in trust per IRS rule.