I received a 1099-K for my rental property from HomeAway. It looks like they included damage deposits and cleaning fees which will be paid out. How is this handled?

[DiddlyD]

To the most part in Florida you are required to remit sales tax to the state, and their definition of a short term rental is the same as other states (less than 30 days), apparently there are counties that are not covered under the state collection program and do their own collection of the short term sales tax, but I'm sure the state and city still get their portions of it too .  I used to work for our state in the tax collection dept. which handled the share to be distributed to counties, so I am familiar with how it works.

I would follow the definition for short term rentals which the "state of florida" is actually consistent with all other states "less than 30 days".  Florida calls it a "lodging Tax" my state calls is "Transient Lodging Tax".  Its the same rates and business code as for Hotels.  The sale tax rate associated with short term rentals includes a combined "county", city and state rates which for my city in Arizona is 12.5%, where as long term rentals (30 days or more) is  just 1.8%.  So for every $ 1,000.00 charged in my city/state per booking, 125.00 is added on for a lodging tax and remitted to the state.   I'm sure if you do more research you will find this method is consistent with other states.

The only reverence in bringing up the sales tax classifications on short term rentals is to show how they're defined by their states regarding their treatment of sales tax as in the "lodging" business just like the Hotel business is, which would report on Schedule C.  

Schedule C is not the same as Schedule E where long term rentals report unless you are like a big investment company with 200 units and have employees etc.  And that is the topic at hand.  So if you use Airbnb, Homeaway to facilitate finding your renters, they are legally bound to charge the appropriate lodging tax on each transaction and remit it to your state on your behalf, so it's short term rental status has already been established with your state.  You should get a statement from Airbnb or the other online market places as to what they paid in sales taxes on bookings they processed on your behalf and remitted (I HOPE) to the state or you should contact them to find out.

[DiddlyD]

Your all getting to hung up on actual tax rates by smaller entities within your state.  Check your state statues, I'm sure you will find the less than or more than 30 day/night rule is sanctioned across the board.  

[DiddlyD]

Common, let's not muddle the water with this and that and be realistic.  When it comes down to it, there is no way Airbnb, Homeaway, or any of the other vacation rental online market places could possibly comply with the states' requirements to collect sales tax if they were not all consistent on the "short term" classification and method to order to remit the sales tax to them regardless of their individual tax rate charts.

This was just meant to provide another way to measure their short term rental classification status.

[DiddlyD]

If you want to go into the topic of how Lodging taxes on short term rentals are paid by Airbnb etc to the tax authorities of your state, here's some information you might be interested in because the bottom line it's your responsibility your property is properly paying the state, city, county taxes. https://www.avalara.com/mylodgetax/en/blog/2018/04/understanding-how-airbnb-tax-collection-happens-o...

The only point to take away from this information for this thread OP is how to discern whether your property use is a short term rental or not regarding where to report on the Federal 1040, schedule C or E and what to do with the 1099-K you will get for online electronic rent payment processing which could include non rental transactions too like PayPal.  It's going to be a fun tax year just be careful to do your own research on the rules because you will ultimately be responsible for the accuracy of your filing not Turbo Tax or even a CPA.

[Anonymous_]

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@DiddlyD wrote:

To the most part in Florida you are required to remit sales tax to the state, and their definition of a short term rental is the same as other states (less than 30 days)............

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Nope. The definition of a short-term residential rental in Florida, for sales tax purposes, is 6 months or less.

If the residential lease is for 6 months and 1 day or longer, then there is no state sales tax charged.

Most, if not all counties, follow state law.

[Anonymous_]

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@DiddlyD wrote:

Florida calls it a "lodging Tax" my state calls is "Transient Lodging Tax".  

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Florida calls it a "sales tax". Counties collect what is called a "tourist development tax" (TDT) on transient rentals.

I know what I am talking about since I actually pay both monthly and have done so for years. 

[rusty1992]

I have the same issue. I use Zillow Rental Manager to receive rental property payments plus a new tenant's security deposit in 2022.  Zillow send me a 1099-K, even though with the late December 2022 delay in implementing the new threshold ($600 and any amount of transactions) they were not required to.   So I must presume they sent the 1099-K to the IRS as well.  

The 1099-K, the amounts listed on it do include the security deposit plus the monthly rent I received.   So what to do in TurboTax?

Option A - report only the actual amount of the rental income on the 1099-K section - and surely it will be picked up in an IRS scan as an incorrect amount and trigger an audit

or

Option B - follow the advice above - report the full reported 1099-K amount as "income" and include a "Expense" in the amount of the security deposit received  - entitled "Funds moved to hold Tenant Security Deposit" and hope that works?

FYI - The IRS explicitly states in IRS Pub: "Topic No. 414 Rental Income and Expenses", "Don't include a security deposit in your income if you may be required to return it to the tenant at the end of the lease."   

So this appears to me to be legitimate advice. Thank you 

John S.

[DiddlyD]

Or option C which is the conclusion I've come to after much research is ignore it (no place to enter it anyway on the 1040 Schedule E and even if Turbo Tax tries to through a worksheet in the mix it is not how you report your rental income on Schedule per IRS rules).  

IRS will get a copy and should know the 1099-K will have other monies not reportable as rental income, it was a new requirement placed on electronic money transfers and is subject to accuracy issues.  Just keep it with your taxes if the IRS has any questions.  I am not going to put arbitrary information in my taxes not previously reportable per the IRS.

[rusty1992]

Thank you @DiddlyD for pointing out this distinction between TT and the actual Schedule E.   

While the TT Schedule E Worksheet has the line "Rental Income from Form 1099-K", the actual IRS Schedule E does not have such a delineation.  Thus Option C seems best.  

[DiddlyD]

Yes, I do understand Schedule C does as that was the businesses that used electronic payments.  I think the 1099-K reporting requirements on companies that process electronic payments didn't really understood the evolving world of excepting rents online through a "vendor" style platforms and therefore has created a kruwndum when filing taxes for rental properties.  I have resolved this in my mind and will not enter it since it will not agree with my true income and I am not going to make up deductions the IRS has not sanction.  Actually their instructions is to not report refundable Deposits as income, therefore there are no instructions to take a deduction for them and I'm not comfortable changing the long established Schedule E reporting requirements, it's why we have a Schedule E in the first place.  What ever TT is trying to push I want no part of.

[DiddlyD]

I should say there maybe some rental businesses that are actually qualified Schedule C businesses, so in that case they would report the 1099-K income.

[DiddlyD]

Careful with just switching to Schedule C to accommodate the 1099-K debacle and think you solved the problem because Schedule C has waiting a nice little surprise pot hole for you to fall into called "Self Employment Tax" !