Rental Income: Rent payments fom Rent Assitance given to tenant

[swhampton7]

I own a  single member LLC which was created for the purpose of owning and managing rental properties. In 2022 I had a tenant who fell behind on their rent. As such, I was able to get them approve for rental assistance thru a Kentucky State agency. The agency paid my LLC 3 months of rent to cover the arrears, plus an additional 3 months of rent payments to cover future rent payments. 

My tenant elected to move-out before the 3 months future rent assistance could be use under the lease. I contacted the State agency about this situation and was told I need to give these funds directly to the tenant. Which I did ($4980). Since the State agency is going to send my LLC  form 1099 with a total of "ALL" the monies forwarded, what is the procedure required to reduce the gross rental income for the amount given directly to the tenant. Do I send a 1099-misc to my tenant and record this as an expense of Schedule E? Not sure how to handle this situation. Please help.

[tagteam]

You could report this as a miscellaneous expense.

[DaveF1006 · Accepted solution]

No, you would not send a 1099 MISC to your tenant to record this as an expense on your schedule E.  You would list this as an miscellaneous expense on Schedule E and give it a classification such as Refund for Advance Rent.