Subtenant buyout treatment by Master Tenant

[john_sramek]

My daughter is the master tenant on a lease in San Francisco that is being bought out.  She has had a subtenant for two years to help with the rent that the owner has never allowed to be put on the lease.  My daughter is paying a portion of the buyout proceeds to the subtenant as an incertive for her to also vacate the property.

My daughter will be getting a 1099 from the owner for the buyout and can she then issue a 1099 to the subtenant for her portion?

[DavidD66 · Accepted solution]

Yes. For the amount that that your daughter is treating as due the subtenant she would be considered a nominee recipient.  She needs to file a Form 1099 with the IRS (the same type of Form 1099 she received) showing the amount she paid the subtenant.  She also needs to give a copy to the subtenant.  You daughter is going to want to report what she receives as "other income".  The problem is there is no mechanism to deduct the amount of nominee income from what is on her 1099 if it is reported as Other Income.  I suggest she create a Schedule C and report only the amount paid to her subtenant as an expense, creating a loss that she can use to offset other income.  If she reports her 1099 as income on Schedule C, she will have to pay self-employment tax on the net amount (what she keeps).