SoCal Water$mart Rebate in Schedule E

[dlipps]

I am a CA resident and received a 1099-MISC for a Landscape Transformation, from SoCal Water$mart, on a rental property I own in CA. Do I add the costs of the landscape transformation in Schedule E under “Expenses”, along with all other unrelated landscape expenses? Also, do I add the rebate amount for the 1099 under “Rental Income” in Schedule E?

[DaveF1006]

Yes, you can enter this as "rental income" in Schedule E. As far as the expenses, it depends if the landscape transformation was an improvement to your existing landscape.  I would treat this a cost basis to your land.  The cost basis will be important to you when you sell the land because it is less capital gains you would claim on the sale of the land.

[dlipps]

Thanks for the quick reply, Dave!

I added a new 1099-MISC under "Rental Income" and updated "Who Paid You?" and entered the amount in "Other Income".  I got a response back: "Can't Report This Income Here; You entered other income of $X,XXX on this Form 1099-MISC.  You can't report other income on a rental property.  You can report this income on another form or schedule later in the Interview"

I have been through the entire interview for "Rental and Royalty" and can find nowhere else to enter the 1099-MISC.  Please advise.

As for the expense, yes, it was definitely an improvement.  I will add a new asset to depreciate with the land. Brilliant it will reduce the capital gains as I sold the property in January this year so it will help.

[dlipps]

Dave,  I searched the Community to see if I could find any more information on this.  I found a couple posts with a somewhat similar issue where the issuer of the 1099-MISC should have entered the amount to Box 1, as the income should have been reported under "Rents".

In order to clarify, I received this 1099-MISC under a rebate program in CA from SoCal Water$mart.  https://socalwatersmart.com/en/residential/rebates/available-rebates/turf-replacement-program/ 

It is a Turf Replacement program offered to promote water use reduction and sustainability. Upon successful implementation of the program requirements, they issue a rebate based on square footage.  So, obviously this is NOT rent.  Hence the dilemma that the income on form 1099-MISC should not be put in Box 1, but the TT program will not allow that (see my earlier post).

[ThomasM125]

The issuer of the form 1099-MISC has determined that it is rent. The IRS will get a copy of the form and assume that as well and will look to see if it is reported as such on your tax return.

It will cause less trouble to report it that way, especially if it won't make a difference on your tax. However, you can report it as other income on your return by following these steps it you want:

1. Go to the "Federal" section of TurboTax

2. Click on "Income and Expenses"

3. Find "Less Common Income" and choose the last entry "Miscellaneous Income"

4. On the next screen, "Miscellaneous Income" choose the last entry "Other Reportable Income"

5. Enter a description for your entry and enter the amount you want to report as other income 

[dlipps]

Dave,

Sorry if I confused things.  The issuer of the Form 1099-MISC listed the income in Box 3 "Other Income", NOT Rent.

If I enter the income as you suggested below, it is entered outside of Schedule E and would not apply to the respective rental property and rather would apply as personal income.  Could this be a problem if reported this way, or impact taxable income?

[KrisD15]

It is a rebate, so you would not claim the rebate amount as income, rather you would reduce the expense you claim on the rental. 

For example, the cost to landscape was 6,000, and the rebate was 500. Simply report 5,500 as the landscape expense on Schedule E. 

The 1099-MISC would not be entered.

If you want to enter the 1099-MISC since the IRS MAY look for it, still reduce the expense on Schedule E and also negate the 1099-MISC.

Enter it this way:

Enter the 1099-MISC and then enter a negative offset:

Click on Federal on the left side-bar, then Wages & Income along the top.

When you get to the Income section, (you may need to click "Show All Income" first) Scroll down (go past Self-employment) to Other Common Income and Click Show more

Click Start for Form 1099-MISC and enter it

Enter a description for the non-work income, such as “Utility Rebate” for the reason and Continue

Click “None of these apply.” at the bottom of the list for “Does one of these uncommon situations apply? And Continue

Answer “No, it didn’t involve work like my main job.” on the next screen and Continue.

Answer “No, it didn’t involve an intent to earn money.” on the next screen and continue.

Do you have another 1099-MISC? Click No and Continue

Click Done.

The income will show as a line item on line 7a of your 1040.

Next, make the adjustment for the reduction in the expense claimed on Schedule E

Click on Federal,,,Wages & Income,,,,scroll down to the last section "Less Common Income"

Scroll down to the last choice "Miscellaneous Income, 1099-A 1099-C" and Start

Scroll down to the last choice "Other reportable income" and Start

For the Description enter "Reduction in utility expense for 1099-misc"

Enter the amount of the rebate AS A NEGATIVE NUMBER

(remember that you are also reducing the expense on Schedule E)

Click Continue and Done

The 1099-MISC and your adjustment will show on Schedule 1 line 8 and flow to line 7a the 1040. 

This will zero out the original 1099-misc

Be sure you understand what you did and keep records with your tax file. 

[dlipps · Accepted solution]

Wouldn't it be simpler, and acceptable, to enter the 1099-MISC as you indicated through 1099-MISC and Other Common Income>Income from Form 1099-MISC and NOT negate the same in Less Common Income>Miscellaneous Income, as well as NOT reduce the expense on Schedule E?  This reflects the 1099-MISC income the IRS will be looking for, and offset the expense in Schedule E.  I ran it through the return both ways and the difference in the impact was immaterial on the Federal taxes.

[DaveF1006 · Accepted solution]

You can enter this the way you suggest just as long as there is not amount in Box 7 of the 1099 MISC.