Rental Income on a Schedule E

[GGBJr]

My two daughters share a 50-50 interest in a rental property.  Entering rental income and expenses is straightforward, which is coded to be split 50-50.  However, they also have this income invested in a money-market fund with Merrill Lynch.  How do they enter the dividend component onto Schedule E, or don't they.  Right now it comes on a 1099-DIV to one of the daughters for the full amount.  In the past we have split it, and entered the split amounts on their separate 1099 DIVs, instead of the full amount shown on the IRS 1099.  Is this legal?  Or, is there a way to enter the dividends on the Schedule E?

[AmeliesUncle]

Can you clarify? What is the connection between the rental and the money-market fund?  They seem to be two completely separate things.

[ErnieS0 · Accepted solution]

A Form 1099-DIV is not normally reported as part of a rental property. I'm assuming the rental and dividends are two different issues.

The IRS matches income against Social Security numbers. The best practice is to report the entire 1099-DIV on the return of the daughter whose name and Social Security number are on the 1099-DIV.

Daughter A will then subtract half the dividend as a nominee distribution and issue a 1099-DIV to Daughter B.

Here's what to do on Daughter A's return:

1. Type 1099-div in Search (magnifying glass) in the top right corner
2. Select 1099-div
3. On “Your investments and savings” Edit your dividends
4. On Now, let’s review your 1099-DIV enter your info, then Continue
5. On "Do these uncommon situations apply?" select I need to adjust these dividends or this is an ESOP distribution
6. Select I need to adjust these dividends, then Continue
7. On "Tell us about your dividend adjustment," enter the amount going to Daughter B
8. Under Type of Adjustment, select I received all or part of these dividends for someone else (I am a nominee)

Daughter A can prepare and file a Form 1099-DIV at many online sites or she can buy blank forms at an office supply store. Do not download and print forms from the IRS website. The red copy uses a special ink.

[GGBJr]

The two items are related in that they are both involved with rental income. The girls leave the pure rental income in an account in a money-market account. This interest gets reported on a 1099-DIV to one of my daughters. In past returns we created a second 1099 for the second daughter. We halved the amount and reported these two amounts in the separate 1099s. The IRS has never questioned this, but is it correct?

[AnnetteB6]

Yes, splitting the dividends received based on the shared rental income is correct.  

However, to do this properly you need to follow the advice given by ErnieS0 which says that a nominee adjustment should be made on one daughter's return and a Form 1099-DIV should be issued to the other daughter for her half of the dividends.  ErnieS0 gives more specific instructions above.

@GGBJr 

[AmeliesUncle]

The rental income and the money market are two completely separate things. 

If the girls decide to use the proceeds for the rental to put into the money market, great.  But that is completely separate from the rental.  So nothing in regards to the money market investments go on Schedule E.