1099MISC for R/E Rents Received but Not Yet a Rental Property

[kalstrin]

I just started renting a condo in late 2019 and the property management company sent me a 1099-MISC for a small amount  of income from a handful of rental days.

It is my preference to keep my condo as a 2nd home and not a rental property for 2019 and it sounds like this is allowed.  Per IRS rules if a 2nd residence is rented for less than 15 days then it's not considered to be a rental and there is no need to report income and expenses on Schedule E.  

My question is how do I disposition the 1099-MISC I received from the PM company?  In other words, how do I address the $658 in my tax filings that was reported to the IRS by the PM company that I wasn't obligated to report?  Can I just ignore it or is there some other way that I should be addressing this tax form?

This isn't about trying to avoid tax on $658.  It's more about my desire to delay the conversion of this condo to rental property and being subject to more depreciation recapture and capital gains when I sell.

[Carl]

I just started renting a condo in late 2019

If the rental contract is more than 15 days, you must report the income "as" rental income and show the property 'as" rental property on  your 2019 return. It doesn't matter if the contract did not start until Jan 1st of 2020 either. Rental income is reported in the tax year it is received, regardless of what tax year it may be "for".

For example, you will show your date of conversion to rental property as whatever day in 2019 the property was move-in ready and "available for rent" weather there was actually a renter physically in the property or not. Your day count for days rented starts from the first day the property was "available for rent". Again, it just does not matter if a renter was actually in the property or not.

I'm confident that when the property was shownin 2019 to what was then a prospective tenant, it was move in ready. So you can't get out of this legally.

Now you *might* be able to report it as other income. But with the amount being reported in box 1, combined with the fact you will be reporting rental income on your 2020 tax return, there's a good bet you'll get questioned on it in 2021 after you file your 2020 return reporting rental income/expenses. If questioned, you could expect to lose.

[kalstrin]

This is not the traditional landloard/tenent relationship with a lease.  This is a vacation property that a property management company solicits short term rentals for me.  The PM company sold 6 nights for me in 2019.  Per the rules described in IRS Pub 527 - Residential Rental Property: if the property was rented less than 15 nights then it is assumed that the primary function of the property is not for rental and I have no obligation to report it as such.  Also, per the same publication, the day count for days rented has nothing to do with when it was made available for rent.  It is only based on the number of nights it was rented.  The question was not whether or not this is a rental.  I know that I don't have to call it a rental.  The question is how to disposition a 1099MISC for income that I was not obligated to report.

[AmeliesUncle]

Can you clarify a few things first ...

(1) Did you live in the home at all in 2019?  If so, how many days?

(2) After the first day of rent, did you live in it, or will you live in it within a year?

[kalstrin]

Yes, I lived in the condo for a lot of 2019.  I haven't counted up the days yet but it is probably between 50-60.  I also used the condo after it was rented.  As I mentioned it is vacation real estate so, yes, there is personal use interspersed between the rentals.

[AmeliesUncle]

Hypothetically, you could just ignore the 1099-MISC and not enter it on your tax return.  However, you WILL receive an IRS notice about that.  If you do that, you would just respond to the IRS notice explaining you rented your Residence for less than 15 days, so it is not taxable.

Another option is to enter the income as a rental property, and then enter the same amount as a 100% rental expense.  Don't enter any other expenses (including depreciation) because it really isn't considered a rental this year.  That would end up with a $0 profit/loss, and would avoid the IRS notice.  However, to avoid confusing the program, you may need to say you did NOT use it for any personal days, otherwise it will give you an error because it was rented for less than 15 days.

[ColeenD3]

Another option is to include it as other income. This will avoid the rental section problem. Be sure to reference Box 1, 1099-MIsc so the IRS can match it.

Next, back it out again as negative number, referencing the 15 day rule.

Click on Federal Taxes at the top of the screen;

At the bottom of Your Income box pick the option in blue to help me add other income, then jump to full list;

Scroll down the page to the last section titled: Less common Income and click show more;

Select start or update next to the last topic titled Miscellaneous Income, 1099-A, 1099-C;

Scroll down to the last option titled Other reportable income and select start or edit;

When it asks, "Any other reportable income?" say yes then you will make two entries:

Your first entry description would be  Box 1, 1099

Next you click "Add Another Miscellaneous Income Item," and enter this description: Rental less than 15 day excludable income and enter the 1099 Box 1 amount as a Negative (-) number. 

This both shows and explains removing the W-2 income, placing a zero on the other income line of your Form 1040. 

If your W-2 has federal or state taxes withheld, you can enter these amounts in the Deductions & Credits section under Other Income Taxes as Withholding not already entered on 1099.

[kalstrin]

Thank you ColeenD3. This approach got me going down the right track.  I noticed after following your directions that the program made an Other Income Statement which I could review in forms view.  My positive and negative entries both showed up on Line 22 as 'other taxable income'.  In forms view I found that I was able to move the positive entry up to Line 3f where 1099-MISC, box 1 income really belongs.  When I started typing the value in Ln 3f a magnifying glass icon appeared which allowed me to create the supporting form.  When creating the supporting 1099-MISC in forms view you can manually select which form to report the income such as Schedule C, Schedule E, and Form 4835.  There was also a tick box for the income to show up on the Other Income Statement which is want I want.  I think the TurboTax Step by Step interview will only direct 1099-MISC, box 1 income to Schedule C, E, or 4835.  However you can manually direct it to the Other Income Statement in forms view.  I left my negative offsetting value in Ln 22 with the explanation that it is excludable.  This is feeling like the right way to do what I needed to do.  It very similar to what you suggested but now I have an accurate supporting 1099-MISC, and the income is on the correct line, and it shows up in the same statement where it is getting nulled and explained away.

Thank you.