Misc 1099 includes pre-paid rent held by property manager

[um]

I received a 1099-MISC from my property manager for rental income for 2024, but  Box 1 RENTS ($27,200) includes pre-paid rent ($1,500) by a tenant for Jan 2025. This prepaid rent is held by the Property Manager and will be applied to me in Jan 2025. I am fairly certain that I need to enter the full amount provided in Box 1 in Turbo Tax when I enter my rental income, but where do I offset the income I have not yet received?

On Page 2 of the 1099-MISC under the heading 'TAX DETAILS' it does list the amount as 'prepayments'.

Taxable Income = $25,700

Prepayments = $1,500

Taxable Total = $27,200

Thank you for your help.

[CatinaT1]

Prepaid rent income is taxable when you receive it, regardless of what period of time the rent covers. You will not offset the amount shown in box 1.

[um]

Thank you, CatinaT1 - I knew about the rule 'no matter when you receive it'. BUT, I have not actually received the pre-paid rent, as it is held by the property management company until the next month, i.e. Jan 2025. Then it will be counted again as rent income for me for tax year 2025, as that is the time I will actually receive the money.

That's the dilemma.

[PII removed]

[DianeW777 · Accepted solution]

You are not required to report income you have not yet received.  As you indicated, although the property manager does have the money, they have not yet paid it to you.  It should not be included in your 1099-MISC, however there is no need for concern.  Report and include only the rents you actually received in 2024. 

Keep good records of your income should you need to explain later.  When you actually receive the income in 2025, you will report that income next year.

@um 

[um]

Thank you, DianeW777, for your answer.

Not reporting as income would mean that there is a discrepancy between what was reported to the IRS and what I show as income. Will that not raise red flags as these two amounts differ?

Could I offset the pre-paid rent as 'Other Expenses - pre-paid rent'? That way it would equal out.

[PatriciaV]

Timing differences are not unusual when one party (property manager) uses the accrual basis of accounting and the other party (owner) is a cash-basis taxpayer. By the time the IRS questions the difference, you may have already filed your 2025 return (which will report that income). In any case, you can easily attribute the difference to your accounting methods.

[um]

Thank you, DianeW777, for your answer. I researched the topic further and the best way to solve the issue is that the property manager issue a corrected 1099 without the prepaid amount.