Free Rent

[Snaggletooth]

Landlord allows tenant to live in an apartment complex rent free.

In turn, tenant tends to activities in the complex. Collects rent, arranges for repairs, bookkeeping, etc.

1) Is there income involved to the tenant?
2) If so, is there expense to the landlord to the extent of tenant income?
3) If the tenant has income, is there a requirement on the landlord to issue
a 1099 to the tenant?

[erchess]

My Two Cents

I actually had a situation where this was going on and the client who was getting the apartment and doing the work was getting a 1099. Here is what I would do if I were advising both parties.

You have to determine what the apartment would rent for if a non working tenant occupied it. That should not be hard unless there is no identical apartment in the complex. You also have to determine what the work in question would cost the landlord if paid for in cash. Again that's probably not difficult. But I am mis speaking. The landlord needs to tellk you in writing what the two figures are. Your role is to proceed only if what he tells you makes sense.

The tenant has income equal to the higher figure. The landlord has income equal to the rent and expense likewise. The Landlord does have to give a 1099 even under the old rules much less the new ones that I think are about to kick in.

[Corduroy Frog]

Cash Payments - 1099

I was thinking that if there are no cash payments of $600 or more, then there is no 1099.

Exception being if there is more than $5000 in furnished goods...

[Jesse]

If the rent is provided as a condition of employment I didn't think it to be taxable income to the complex manager. I haven't run into this myself but I thought I read/heard this at a seminar some time ago. Then again maybe I dreamt it?

Edit:

Landlord allows tenant to live in an apartment complex rent free.

In turn, tenant tends to activities in the complex. Collects rent, arranges for repairs, bookkeeping, etc.

Would it be possible to draw up a contract & change "allows" to "required"?


Check out this link to see if it applies:

http://www.irs.gov/publications/p15b/ar02.html#en_US_2012_publink1000193699

[ChEAr$]

On site manager/tenant/taxpayer is employed by owner and lives rent free for convenience of employer, the FMV of apartment being only value received, thus non taxable.
He is on call 24 hours a day really, so that justifies earning his keep.

[Gretel]

I was thinking that if there are no cash payments of $600 or more, then there is no 1099.

Exception being if there is more than $5000 in furnished goods...

I am commenting on the actual cash payment vs no cash is exchanged only. I had the same dilemma for one of my farmers and from what I have gathered it does not make any difference if cash actually flows, the reporting requirements are still the same.

[Nashville]

Cash Payments

I am commenting on the actual cash payment vs no cash is exchanged only. I had the same dilemma for one of my farmers and from what I have gathered it does not make any difference if cash actually flows, the reporting requirements are still the same.

At one time the 1099-MISC requirements were for cash payments only. I've heard rumors that it has changed or will change but haven't tracked them down. Problem is, nothing but cash leaves an audit trail in a typical bookkeeping system.

Farmers have an unusual opportunity to avoid cash that other people don't have. Barter and swapping can occur frequently with farmers.

[Gretel]

Nash/Snaggle, you might want to take a look at this link

http://www.irs.gov/businesses/small/article/0,,id=188095,00.html

[Jiggers]

Regarding a farmer that provides a tenant a house to live in, Pub 225, Farmer's Tax Guide, Page 23, has the following: "You can deduct the costs of maintaining houses and their furnishings for tenants or hired help as farm business expenses. These costs include repairs, utilities, insurance, and depreciation. The value of a dwelling you furnish to a tenant under the usual tenant-farmer arrangement is not taxable income to the tenant."

[ChEAr$]

At one time the 1099-MISC requirements were for cash payments only. I've heard rumors that it has changed or will change but haven't tracked them down. Problem is, nothing but cash leaves an audit trail in a typical bookkeeping system.

Farmers have an unusual opportunity to avoid cash that other people don't have. Barter and swapping can occur frequently with farmers.

I'm scratching my head and trying to remember that, Ron. for cash payments only?
(And I KNOW you're younger than I am. grin)

[Gary2]

On site manager/tenant/taxpayer is employed by owner and lives rent free for convenience of employer, the FMV of apartment being only value received, thus non taxable.
He is on call 24 hours a day really, so that justifies earning his keep.

In order to be a non-taxable fringe benefit, doesn't the site manager have to be an employee? And if the only compensation a person receives is a non-taxable fringe, then is that person really an employee? I don't know.

But that's before we get into questions such as whether the landlord is paying any required worker's comp, unemployment taxes, providing mandatory employee rights notices, etc. It's conceivable there are no such obligations in this case, but that can vary by locale.

[ChEAr$]

In order to be a non-taxable fringe benefit, doesn't the site manager have to be an employee? And if the only compensation a person receives is a non-taxable fringe, then is that person really an employee? I don't know.

But that's before we get into questions such as whether the landlord is paying any required worker's comp, unemployment taxes, providing mandatory employee rights notices, etc. It's conceivable there are no such obligations in this case, but that can vary by locale.

The fact that the furnishing quarters is the only compensation doesn't matter I think.
In cases where a business pays health insurance only engenders compensation to that person, e.g. wife of a sole proprietor who works in the business solely to merit coverage.

I'm sort of looking to the day , well in the future I hope, where my S corporation might even have a loss after paying my own health insurance. That will be compensation enough for the very little work I do at that distantly future date. I hope.

And in most states, workmens' comp isn't required with less than a certain number of employees, I think about 4 in this state.

[Bees Knees]

In order to be a non-taxable fringe benefit, doesn't the site manager have to be an employee? And if the only compensation a person receives is a non-taxable fringe, then is that person really an employee? I don't know.

There is no law that says cash has to be paid in addition to a tax free fringe benefit. Nothing in Section 119 says lodging may be excluded only if cash wages are also paid. In fact, Section 119(b)(1) says an employment contract is not what determines whether the rules of Section 119 are met. The only requirement for exclusion from income is that the lodging is furnished for the employers convenience and the employee is required to accept the lodging as a condition of his/her employment.

Caretakers of apartments exclude the value of their lodging all the time. More often, they receive a reduced rent in exchange for vacuuming the halls and showing empty apartments to prospective tenants. Even in the case where the caretaker is paying the landlord a reduced rent in exchange for caretaker services, it is still an employer employee relationship, with the value of the reduced rent excludable from income under Section 119.

In Minnesota, the value of excluded income under a caretaker/landlord relationship must be added back to household income when calculating the Minnesota property tax refund (Form M1PR).

BTW: If the landlord does pay cash in addition to free rent, the landlord should issue a W-2, not a 1099. According to the chart in TTB, page 13-7, if you call the caretaker an independent contractor, the meals and lodging exclusion cannot apply.

[Gretel]

Regarding a farmer that provides a tenant a house to live in, Pub 225, Farmer's Tax Guide, Page 23, has the following: "You can deduct the costs of maintaining houses and their furnishings for tenants or hired help as farm business expenses. These costs include repairs, utilities, insurance, and depreciation. The value of a dwelling you furnish to a tenant under the usual tenant-farmer arrangement is not taxable income to the tenant."

Thanks, Jiggers, for chiming in, I always treasure your experience. However, my little conversation with Ron was only in regards to his statement that only actual cash payments require a 1099, not in regards to his actual question. It's probably not a good idea to just cherry pick, I should have started a new thread.

[OtisMozzetti]

...
Caretakers of apartments exclude the value of their lodging all the time. More often, they receive a reduced rent in exchange for vacuuming the halls and showing empty apartments to prospective tenants. Even in the case where the caretaker is paying the landlord a reduced rent in exchange for caretaker services, it is still an employer employee relationship, with the value of the reduced rent excludable from income under Section 119.
...

If the value of their lodging is excluded from income (it seems to be earned income), then one wonders whether the EITC and the Additional Child Tax Credit are that much harder to come by.