My rental manager's 1099-MISC lists Box 1 "rents" and Box 3 "other income" covering expenses and late fees from the renter. TurboTax won't allow this. Where do I put it?

[studytax]

These expense reimbursements and late payment fees paid by the tenant are clearly related to the rental. Why does TurboTax not allow me to input the Box 3 income in the rental section?

[PatriciaV]

The income reported on Form 1099-MISC Box 3 is Other Income, which the IRS views as unrelated to your rental activity. Also, Schedule E has no "Other Income" category available.

First, don't include Box 3 for this 1099-MISC under Rental Income.

Second, enter another 1099-MISC with the same payer information under Wages & Income >> 1099-MISC and Other Common Income >> Income from Form 1099-MISC. For this entry, report only Box 3, and this amount will appear on Form 1040, Line 21 with the description "Other Income."

[price1d]

Thanks for explaining what to do so clearly.  However in this situation, has the rental property manager completed the 1099-MISC correctly? Shouldn't expenses/late fees recovered from the renter also be considered rental income?

[PatriciaV]

Good point @price1d. Income related to the rental property should be reported as "Rents" in Box 1. But as it was reported in Box 3, the option remains to report this as Other Income.

[skipsherv]

Thank you PatriciaV!  I have the same issue with tenant reimbursed power bills I paid during COVID.  The management company listed those in box 3 and that defaults me into filling out a Schedule C and paying self-employment tax which in return reduces my refund by hundreds of dollars!  Your reply helped me a lot!

[Carl]

Here's the deal.

When it comes to rental property, all income received from all sources for any reason is rental income. Period. End of Story.

The 1099-MISC issued to you is flat out incorrect. You need to inform the issuer of this. If they want to disagree with you, then by all means refer them to IRS Publication 527 page 2, third column under "Rental Income". I clearly states,

"you must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use or occupation of property. It isn’t limited to amounts you receive as normal rental payments."

Add the amount in box 3 to the amount in box 1. That will be your "box 1" amount that you will actually enter into the TurboTax program. You will not enter anything for box 3, anywhere on your tax return.

[jhrushi]

Thanks for this information. I have spent over 10 hours on phone with experts at various levels. NONE of them has this idea :( . I will try and let you know if that works. They are asking me to contact payer and change the 1099-MISC to move the amount from BOX 3 to 1 which is not possible as per my payor

[skipsherv]

I did it last year and had no issues.  I also report about $9,000 a year as "other income" even though I receive a 1099 Misc for it.  This is because CA state tax law requires my employer to pay me a medical stipend benefit as if I am a contractor when in fact, I am simply a retiree receiving a contracted and earned benefit.  I simply explain it on form 8275 and have had no issues for several years.