Property Management Company in Business Edition

[Goro7731]

I have an LLC and manage rental properties for clients.  I am using TurboTax Business Edition for the first time this year and have some questions.

• I manage 10+ rental properties (some commercial, others residential) for a client and send him a 1099-MISC reporting total gross rental income I collect.
• I collect all rents into a trust account, from where I pay property expenses (mortgages, etc) and contractors for repairs.
• I send out 1099-NEC to all the contractors for repair/maintenance work done on the properties.
• Each quarter, I send the remaining balance minus my management fees to my client, along with a list of detailed expenses for his taxes.

I am confused, because it seems like I would have to input income and expenses for each property, as if I owned them, but I do not.  Using business edition, how do I report my income (which is really just the management fee)? 

1. Do I need to create a listing for each property under "Rental Real Estate" even though I do not own the property?
2. If so, what do I put for gross income and total expenses?
3. Do I need to ask my client for a 1099-MISC to report my management fee?

[ThomasM125]

You would just report the management fee you receive as income for services rendered. You can deduct any expenses you incur that you pay out of pocket to generate your fee. The owners of the properties report the rent income and property expenses on their tax returns. The rent money you receive is similar to a loan, that you don't report because it is not income to you.

You report the income as self-employment income, as your income is for the management service you provide, not rental income.

The owners of the properties should send you a form 1099-NEC if your fee is more than $600 for the year, but that is their responsibility, not yours.

[Goro7731]

Thank you for the reply.  But say I'm collecting rent on 5 commercial properties that I do not own.  The tenants each send me a 1099-MISC (since they paid rents to me) showing the gross rent they paid. 

1. On my taxes, you are saying I do not need to report the 1099-MISC rental income that I received?  Is it enough that I issue a 1099-MISC to the owner of the properties for the same gross rental receipts?

There was a similar question posted the other day (from the perspective of the owner), in which the answerer suggested the Owner should not send a 1099-NEC to the Property Management company for the management fee (which is above $600 for the year). Is this true?

[Critter-3]

If the rent you collect has your name on the checks then it is income to your business even if you put it in a trust account ... then you simply deduct the expenses and the amount you send to the owners which will leave only your income on the return and that is then reduced by your business expenses.  It is just that simple ... don't over think it.   

And a single member LLC files a Sch C  unless you incorporated ... then you file an 1120 or an 1120-S.  If you did not incorporate then the TT Business program is not for you.

[Goro7731]

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@Critter-3 wrote:

If the rent you collect has your name on the checks then it is income to your business even if you put it in a trust account ... then you simply deduct the expenses and the amount you send to the owners which will leave only your income on the return and that is then reduced by your business expenses.  It is just that simple ... don't over think it. 

Thanks for the answer.

Just to clarify, say I receive $100,000 in gross rental payments from the commercial tenants reported on a 1099-MISC.  Should submit a 1099-MISC to the owner for the amount of GROSS rents received (in this case $100,000), along with a list of expenses so that they can declare the income/expenses on on their Schedule E, correct? Or do I send the owners a 1099-MISC showing the NET rent received (minus just my management fees)?

Also, I (as a multi-member LLC/partnership) should not file a Schedule E because I do not own any of the property, but should instead report income/expense for these rentals on K-1 correct?

[Carl]

But say I'm collecting rent on 5 commercial properties that I do not own.  The tenants each send me a 1099-MISC (since they paid rents to me) showing the gross rent they paid. 

Actually, since *YOU* collect the rent, and "YOU" pay all expenses out of an account that you own/have access to, that means you are the one that sends the property owner a 1099-MISC for the rent that *YOU* pay *THEM*.

Basically, you report all monies collected from tenants as income. Then  your deductible expenses are the rent amount that you forward to the property owners, as well as any costs you incur in the process of providing your services on behalf of the property owners. The property owners don't send you anything since it's the tenants, and not the property owners who pay you directly.

1. On my taxes, you are saying I do not need to report the 1099-MISC rental income that I received?  Is it enough that I issue a 1099-MISC to the owner of the properties for the same gross rental receipts?

You report as gross income, all income received from tenants.

There was a similar question posted the other day (from the perspective of the owner), in which the answerer suggested the Owner should not send a 1099-NEC to the Property Management company for the management fee (which is above $600 for the year). Is this true?

It depends on who has control of the rental income. Since rent is paid to you and not directly to the property owner, you have control of that money when received, and you retain control until such time you pay it to a employee, sub-contractor or a property owner. Therefore, you are the one who needs to issue a 1099-MISC to each property owner you paid more than $600 to during the year, with the amount you paid them reported in box 1 of that 1099-MISC.

Now if you are required to issue a tax reporting document to a vendor, such as a cleaning service bursiness you sub-contracted things out to, then you'll issue that business a 1099-NEC since for them, the money you paid them is earned income.

[Critter-3]

The 1099 you issue to the owners should have the GROSS income their property had come in then you should also be issuing a year end summary of all the income and expenses paid on their properties which will show a net income on the bottom line.  This is the info they need to complete their own Sch E  forms on their personal returns.   If you don't have a bookkeeping program for property managers that will produce these summaries easily then you need to find one that does or get real good at excel.  

[Goro7731]

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@Critter-3 wrote:

The 1099 you issue to the owners should have the GROSS income their property had come in then you should also be issuing a year end summary of all the income and expenses paid on their properties which will show a net income on the bottom line.  This is the info they need to complete their own Sch E  forms on their personal returns.   If you don't have a bookkeeping program for property managers that will produce these summaries easily then you need to find one that does or get real good at excel.  

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So I receive a 1099-MISC from the commercial tenants for the GROSS rents I collect. I then submit a 1099-MISC to the owner for the GROSS rent along with the year-end summary of expenses, so they can fill out their Schedule E properly and deduct expenses paid. 

Since I also paid all the expenses (before disbursing the remaining balance to the owner) and issued 1099-NEC to the contractors (ie. cleaning crews, maintenance workers, etc), how does the owner answer Schedule E  - Question A & B (Part 1), where it asks "Did you make any payments in YEAR that require you to file a 1099 and if 'Yes' did you file a 1099?"  when technically, the owner himself did not file a 1099 or make payments  to the contractors?

[Critter-3]

The rental owners do NOT 1099 the property manager since you are 1099ing them. 

[Goro7731]

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@Critter-3 wrote:

The rental owners do NOT 1099 the property manager since you are 1099ing them. 

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Yes, I understand that; however, the question from the Owner's Schedule E is asking if the owner paid any expenses over $600 that would require a 1099.  Since technically the owner did not issue a 1099 to the cleaning crews or repair contractors but is taking all the deductions for expenses, how would the owner answer that question on his Schedule E?

[Carl]

the question from the Owner's Schedule E is asking if the owner paid any expenses over $600 that would require a 1099.

They answer no. Period. The individual owner of a residential rental property is not required to issue a 1099-MISC.

Overall though, the owner should not have "any" rental expenses to claim. They should be claiming as income only the amount you actually paid to the owner. You, as the rental property manager claim all the rental expenses you paid from the rent you collected, as business expenses.

Things get tricky "only" if you purchase something for a rental property that "must" be classified as a rental asset. I'm not getting into that right now, because typically a property manager doesn't have to deal with property assets of property they don't own.

[Goro7731]

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@Carl wrote:

the question from the Owner's Schedule E is asking if the owner paid any expenses over $600 that would require a 1099.

They answer no. Period. The individual owner of a residential rental property is not required to issue a 1099-MISC.

Overall though, the owner should not have "any" rental expenses to claim. They should be claiming as income only the amount you actually paid to the owner. You, as the rental property manager claim all the rental expenses you paid from the rent you collected, as business expenses.

 I see, so that implies that I should be issuing a 1099-MISC to the owner for the NET rent (after maintenance, repairs and fees) rather than the Gross rent?  And if that's true, I just claim the rental expenses as business expenses on my partnership K-1 instead of rental expenses that would normally be declared on Schedule E?

[Carl]

so that implies that I should be issuing a 1099-MISC to the owner for the NET rent (after maintenance, repairs and fees) rather than the Gross rent?

If you are the one that pays all the rental expenses, it's not an implication. It's a fact.

The only expenses I know for a fact the property owner will claim, are mortgage interest, property taxes and property insurance. I doubt that you as a manager of the property you don't own, have to deal with those three expenses anyway.

[Carl]

Actually, let me refine my last response.

If you are the one who makes the decisions on things like what contractor is hired to perform work or provide services to a rental property, and are also the one who pays for the work performed or services provided, then you are the one to claim the expenses on your tax return as a business expense. The property owner gets a 1099-MISC for the amount of rental income you actually pay to them. The property owner is not an "active participant" in the rental activity. You are.

On the other side of that coin, if you can't spend a single penny of the rental income without the implicit permission of the property owner for each and every disbursement you make, then you are correct to report the gross rental income to the property owner, as well as provide them a detailed list (with receipts if applicable) of all expenses you paid on their behalf and with their permission, so the property owner can claim it on their own tax return. In this scenario, either the property owner or the property manager would issue any 1099-NECs where required.

Typically, the property manager issues all 1099-NECs, as that is but one of the services the property owner is paying the property manager for.

[Goro7731]

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@Carl wrote:

On the other side of that coin, if you can't spend a single penny of the rental income without the implicit permission of the property owner for each and every disbursement you make, then you are correct to report the gross rental income to the property owner, as well as provide them a detailed list (with receipts if applicable) of all expenses you paid on their behalf and with their permission, so the property owner can claim it on their own tax return. In this scenario, either the property owner or the property manager would issue any 1099-NECs where required.

Typically, the property manager issues all 1099-NECs, as that is but one of the services the property owner is paying the property manager for.

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This is the exact scenario.  We receive rent on behalf of an owner, pay expenses, and disburse the net to the owner. We do not consider the rental income as (our) income, nor do we deduct the expenses these properties incurred.

Since the commercial tenants are sending me a 1099-MISC for the rent they paid, the question is how do I declare the RENTAL income on my 1065 (Partnership Return)? 

Say I collect $100,000 in rent for the owner. I receive a 1099-MISC from the commercial renter in this amount showing he paid me rent.  My management fee is $2000. 

1. Do I declare $100,000 in income on my 1065 under Income 1a (Gross receipts or sales) plus an additional $2000 for my fees?

2. Second, since I also send a 1099-MISC to the owner for the gross $100,000 in rents, where do I deduct this amount?  Do then take the $100,000 deduction on 1065 under Deductions (#13 Rent)?

Or do I completely leave the $100,000 in rent collected out of my income on the 1065, and just declare my $2000 fee as income?  I'd like to do it this way, as it seems simpler; however, remember, I am receiving a 1099-MISC from the renters showing they paid me $100,000.  If I receive a 1099-MISC showing rent income of $100,000 and issue a 1099-MISC showing rent paid (to the owner) of the same exact amount, do I even need to declare the said income?