1099 - Rental Income

[peggysioux]

Scenario: Employee receives rent from employer for use of office space in employee's home. Employee is reimbursed all expenses on an accountable plan. At end of year, employer sends employee a 1099 for the rental income paid in 2008. Employee's tax preparer advises employee that is would be better if the employer would mark the 1099 as "other income" rather than rent so the "home office" and depreciation does not come into play. What, if any, are the ramifications of marking rental income as "other income" on 1099?

[JG EA]

Scenario: Employee receives rent from employer for use of office space in employee's home. Employee is reimbursed all expenses on an accountable plan. At end of year, employer sends employee a 1099 for the rental income paid in 2008. Employee's tax preparer advises employee that is would be better if the employer would mark the 1099 as "other income" rather than rent so the "home office" and depreciation does not come into play. What, if any, are the ramifications of marking rental income as "other income" on 1099?

What does not come into play mean? It seems to not matter what they call it. When you say all expenses are reimbursed, you mean besides rent, correct?

Does this help?

TTB 5-15

If an employee rents a part
of his or her home to an employer, and uses the rented part in
performing services for the employer as an employee, the deduction
for the business use of a home is limited. Mortgage interest,
real estate taxes, and personal casualty losses for the rented part
are deductible. However, the business portion of other expenses
such as insurance, utilities, repairs, and depreciation are not
deductible.

[Jiggers]

Why 1099?

[QUOTE=peggysioux;79120]Scenario: Employee receives rent from employer for use of office space in employee's home. Employee is reimbursed all expenses on an accountable plan. At end of year, employer sends employee a 1099 for the rental income paid in 2008. QUOTE]

It is my understanding that expenses are reimbursed under an accountable plan that there is no tax implications for the person receiving the payments. The employer gets to deduct the expenses and the employee does not have taxable income.

Nothing is reported on a 1099.

So why is a 1099 being issued?

[Burke]

Because the rent received is not an expense of the employee. It is income and should be reported. However, I believe it could be reported on Line 21 as "not for profit rental."

[peggysioux]

1099 - Rental Income

JG - You are correct, all expenses are reimbursed and yes, your answer helped immensely. New question based on Burke's answer - should it be reported on schedule E or line 21 of 1040??

[Gretel]

In my opinion, if he receives rent it should go on Sch. E. Since this seem to be reimbursements they are not taxable at all if accountable plan.

[Burke]

JG - You are correct, all expenses are reimbursed and yes, your answer helped immensely. New question based on Burke's answer - should it be reported on schedule E or line 21 of 1040??

See TTB page 19-12. A taxpayer is not allowed to deduct expenses for business use of the home attributable to rent paid by the employer if the employee is providing services. The employer is allowed a deduction for rent paid, but the employee is not allowed a deduction for business use of the home. (IRC p280A(c)(6).

So you can put it on Sche E if you want, but Line 21 accomplishes the same thing, since no deductions allowed.