Property Manager 1099 Question

[Goro7731]

I own a property management business (as a Partnership LLC). I collect RENT for my client JOE. Example below:

Joe owns a rental property and hires a management company to oversee the property. The tenant pays rent of $1,000/month directly to the management company, which then takes out its $100 fee and sends Joe the remaining $900. At the end of the year, the management company will send Joe a 1099-MISC showing $12,000 of rents received ($1,000 x 12 months), which is the gross amount of rent. Joe will deduct the $1,200 of management fees on Schedule E on his tax return.

So I send Joe (my client) a 1099-MISC showing the GROSS amount of rent I collected for him. Does JOE need to send me a 1099 for the $1,200 in fees I deducted from the rent I collected for him?

If not, how do I report my management fee of $1,200 as income on my tax return?  My tax return will show $12,000 of rents coming in and $12,000 of rent going out to JOE on the 1099 I issued, which is $0 income.

[Carl]

Does JOE need to send me a 1099 for the $1,200 in fees I deducted from the rent I collected for him?

No.

If not, how do I report my management fee of $1,200 as income on my tax return?

You stated that you own a property management business. It's reported as general business income.

Another way to do it, depending on how you maintain your books and what services you provide to your clients,  would be to show the entire amount of rent that you collected, as business income, if you "in fact" actually collect the full rent and deposit that full rent into the business account. Then you expense what you pass to the client, as well as those expenses you pay on behalf of the client, so that you pay taxes only on what you keep. for out of that business income by you, on behalf of the client.

What method you use here depends on what's best for your business structure.

[LLarsen1]

Hi,

I have a similar question - I also have an LLC which "manages" the property - collects rent, has expenses, and takes a 10% management fee. The 1099 for distributed rent shows the total amount of rent collected. In TurboTax, my LLC expenses the "rent - fees" which is distributed to the owner. The remainder (profit) is my 10% property management fee. However, this shows as "Net rental real estate income", Box 2 on the K-1. It should be "ordinary business income", Box 1, since it is not rent to the LLC, but actual income for a service.

I listed the property in the TurboTax form, though the LLC does not own that property. I'm not sure how to show all rents collected in the 1099, but show the amount I keep for management fees as ordinary income on the K1.

Thank you in advance for any guidance you can provide,

Lisa

[DianeW777]

The income for the LLC is business income, not rental income.  The LLC is a property manager and not an owner who rents out property to others.

The rent collected would be an expense on the business which will reduce the income to the amount of property management fees only. You can label it 'Rent Fees to Owners' and list the amount paid to the owners.

Once all expenses have been entered then the net profit will be sent to the K-1s for each partner or shareholder. This is basically the same process indicated by Carl above.

@LLarsen1 

[LLarsen1]

Thank you!