1099-Misc for inherited rental property addressed to deceased father in law

[guptonbm]

My wife's father passed away in 2021. He was a 1/7th owner of a rental property that is held in trust. His ownership was passed to my wife and her sister 50/50. The prop manager sent us a 1099-MISC for 1/7th of the rents received (<$5k) during the year and addressed it to my deceased father in law (including his SSN).

Do we need to report this on our MFJ return? TT asks me to select "This 1099-MISC is for: [Me/My Wife]". It should be for my wife for half of whats on the 1099 (her sister is responsible for the other half), but since its been addressed to my father in law, what we input on our return will not match whats been submitted to the IRS.

I want to report it bc we'll be able to report a net loss (tax savings), but I don't want to raise an audit flag by reporting something different than whats been submitted to the IRS by the property manager.

[MaryK4]

There are a few issues here: Do you receive a Schedule K-1 for the trust?  If so, the income should be included on that form.   You should contact the property manager to submit a new W9 so that he can issue the 1099-MISC in your wife's name not her fathers.  If you are reporting the income and expenses on your own Schedule E, you can report the income even if the property manager does not change the form.  If, however, there is still an estate for her father the income would be reported there and you would receive a Schedule K-1(1041).

[guptonbm]

We don't get a K-1; I think whoever is the Trustee gets the K-1? We just get a 1099 from the PM for our share of the trust's income/expenses.

Re the estate, it is still open, but since the property is held in trust, I think it skips the estate/probate, so wouldn't that income be reportable by us, not his estate? My wife and her sister are both officially listed as partial (1/7th) owners of the property/trust as of 2021. The PM just never updated their records to reflects their names.

Thanks for you help.

[PatriciaV]

MaryK4 is correct. All estates and trusts are required to file a tax return and provide K-1s to the beneficiaries. See this article for more information: Do I have to file a trust tax return?

While you could use the Nominee Return process to split the 1099 between the heirs, this would not satisfy the IRS requirements for trusts. Your best option is to seek the advice of a local attorney who would be more familiar with your specific situation.