The Housing authority sent me 1099-NEC for my rental, but it's for security deposit

[songcai22]

Hi,

I accepted a Section8 tenant in 2021. She couldn't afford to pay the security deposit. The Housing authority paid $1800 for her as security deposit.

The Housing office sent me 1099-MISC for the rent money I received from them, which is correct. But they also sent me a 1099-NEC and it says in BOX 1 "Nonemployee compensation".

Should I report it as self-employment income? But then I need to pay extra tax on it. Which I don't want to do because when the tenant eventually moves out, I'm supposed to return the deposit if the property is in good condition.

Please Help! Thank a lot!

[LeonardS]

When you report the 1099-NEC on the page Does one of these uncommon situations apply? check the button on the line This is not money earned as an employee or self-employed individual, it is from a sporadic activity or hobby (this is not common).  This will report the income and it will not be subject to self-employment tax.  

[songcai22]

@LeonardS Than you for your help!

If I do that like you suggested, the $1800 will be added together with my w-2 income.

Is there a way to add it to the rental property? So in the future, when I return the security deposit to the tenant, I can deduct the $1800 from my rental income.

[ColeenD3]

You only received one payment, even though you received two reporting forms, right? One form, the correct one, the 1099MISC, you reported as rent. This will be the money you return to your tenant.

The other 1099-NEC is for money you have already reported. It is incorrect. You will add it as other income and then back it out with the explanation of "double rent income incorrectly reported on Form 1099-NEC". You make a second entry with a negative amount to zero this out. This way, the IRS sees you reporting the 1099-NEC, but you are not taxed on it.

[ldeanhallig]

I'm not seeing that button, should this not be corrected by housing authority? 

[SharonD007]

Please clarify what button you are looking for.