I used federal funds to rehabilitate apartments. If I rent them to low income tenants for the next 5 years I don't have to repay. When are the funds reportable to IRS?

[peridesgeorge]

These funds were part of the CARES act to help people who are at risk of becoming homeless.   They were provided in the form of grants, but the signed contract characterizes them as a loan.  I received a 1099-MISC but I don't think they are income.  They will become only when the loan is forgiven.  Am I correct or not?

[KrisD15 · Accepted solution]

That's hard to say. Grants can be handled many different way.  

I did find information about a program like that. It seems the Grant comes from the Federal Government and goes to the State. The State allocates it out. 

I assume the group that allocated the funds to you should have reported it on a 1099-G. 

You can ask for the funds to be reported on a 1099-G instead, but that might be hard to get done. 

If the form was issued to the business, you would enter it as income, and then enter the same amount as a loan expense. 

If it is issued to you personally you could enter the 1099-MISC and then enter a second entry to take it out of your personal income. 

Be sure you enter the 1099-MISC as "Other Common Income" and not as self-employment if you're claiming this on your personal 1040. You don't want it to generate Self-Employment tax and you don't want it included as part of a Qualified Business Income Deduction. 

After entering the 1099-MISC, please follow these steps:

Sign into your account and your return

Type   other reportable income   into the Search Box and click the “Jump to other reportable income” link

-OR-

Click Federal on the left side-bar

Click Wages & Income along the top

Scroll down to the last section Less Common Income and click Show more to open drop-down

Scroll down to last section Miscellaneous Income and click Start

Scroll down to the last section Other reportable income and click Start

Enter the description as “Building Rehabilitation Loan reported on 1099-MISC” and the amount as a negative number (be sure to make it negative)

This negative amount will be entered on line 21 to offset the 1099-MISC

Building Rehabilitation Grants

[peridesgeorge]

Thank you very much KrisD15.  Yes, you guessed correctly.  These were funds provided by the Fed to the state and then distributed via a non-profit organization.  They are sending 1099-MISC but I because of an error on their part, I may be able to ask them to send 1099-G.   I use Turbo tax Home and business.

I could not do it with the first two suggestions, but I used the last method you suggested under the "Miscellaneous Income" and worked fine

I still have one question, though. 

When the loan is forgiven, I expect in 5 years, does it then become  income and I should report it as such?

Thank you very much for your help

George

[ThomasM125]

If it represents a loan that must be paid back, but is then cancelled in a future period, it would be treated as income in the year it is cancelled.

[Edited 2/12/2021 9:03 PM PST]

@peridesgeorge

[Carl]

I received a 1099-MISC but I don't think they are income.

If you received a 1099-MISC then there is no question that the grants "ARE" income. Period. It's also reportable on your tax return. Otherwise, you would not have been sent a tax reporting document of any kind. As for the taxability of that income, I can't say. But without question it's reportable on your tax return.

I would suspect the income is also taxable. (the best things in life are free ..... PLUS TAX!) However, it's taxability will be offset based on what you used the money for. If you used the money for qualified property improvements on rental property, then those improvements are entered in the Assets/Depreciation section of the SCH E and depreciated over time.