2023 1099-MISC for Cancellation Fees in 2022

[monksealman]

We own a condo that we used as a vacation rental until June 2022.  We then converted it to our primary home.   We did not rent our condo out at all in 2023.  We received a 2023 1099-MISC from our rental company for cancellation fees (cancelled on 31 Dec 2022) for rentals not rescheduled due to COVID (from 2020 and 2021).  We also received a check from the rental company for the net proceeds from the cancellation fees.  The net proceeds are the total reported on the 1099-MISC minus the rental company fees.

TurboTax won't let me enter information for Schedule E if there are 0 days rental this year.  How do I report this for 2023?  I do not want to have to amend my 2020 and 2021 tax returns.

[ThomasM125]

You received rental income even though you weren't renting during the year. Technically, if you rent a house for less than 15 days during the year, you don't need to report the rent so you could use that as an excuse to not report it if the amount is minimal. Otherwise, you can list a few days of rent, as that is mostly used to determine what deductions are allowable, so you would get the correct taxable income in your case. You wouldn't report the income in prior years as it was received in 2023, so you don't have to amend returns.

[monksealman]

Unfortunately, the amount is significant.  I've already claimed mortgage interest and real estate taxes the "normal" way, so I wouldn't want to split it out between rental expenses and the normal deduction.

[ThomasM125 · Accepted solution]

Correct, you can't deduct mortgage interest or property taxes against rental income during a period that the property was not rented. In this case, the full amount of rental income received is taxable and it should best be reported as rental income on a schedule E. There is an option to report rent from not-for-profit rental property as other income, so that is another less-optimal option for you.

You report other income in TurboTax as follows:

1. From the Federal menu in TurboTax find Wages and Income 

2. Find Less Common Income

3. Choose Miscellaneous Income, 1099-A, 1099-C

4. Choose Other Reportable Income

5. Enter a description of the income and the amount received