Real Estate Agent Form 1099-MISC

[NotEasy]

Client has a rental property managed by a real estate agent. On the Form 1099-MISC, the real estate agent puts the rent collected for my client in box (3) as "Other Income". I think it should go to box (1) as "Rents". But the bookkeeper of the real estate agent said if she puts the amount in box (1), that would mean they are the one who has paid the rent to my client, which is incorrect according to her opinion. So that's why she put it in box (3). Is it right?

[Burke]

No, she is not correct. After all, they DO pay the rent to the client, don't they? They should be sending him the net rents every month, or crediting them to an account in his name. They may deduct a commission, and some reduce the rents in Box 1 by this amount. But it still goes in Box 1. I do these for a client who has a leasing agreement with a mall owner, and the amounts are always shown in Box 1. The client collects the rents, and they are disbursed to the owner. The owner gets the 1099.

[NotEasy]

No, she is not correct. After all, they DO pay the rent to the client, don't they? They should be sending him the net rents every month, or crediting them to an account in his name. They may deduct a commission, and some reduce the rents in Box 1 by this amount. But it still goes in Box 1. I do these for a client who has a leasing agreement with a mall owner, and the amounts are always shown in Box 1. The client collects the rents, and they are disbursed to the owner. The owner gets the 1099.

Thank you.

Would it be a problem if we cannot get them to make the correction? If the taxpayer reports the "other income" in an Schedule E, will he receive a CP2000 down the road?

[Burke]

Probably not. I wouldn't worry about it. If he does, you can explain.

[JohnH]

I wouldn't try to get them to reissue the 1099. If they cant get it right the first time, chances are they won't know how to amend properly. Better to deal with explaining a reclassification in a couple of years than trying to deal with a double reporting.

[Y2KEA]

RE Agent bookkeeper is wrong. Tell her to read 1099MISC instructions:

Box 1. Rents
Enter amounts of $600 or more for all types of rents, such
as any of the following. Real estate rentals paid for office space. However, you
do not have to report these payments on Form
1099-MISC if you paid them to a real estate agent. But the
real estate agent must use Form 1099-MISC to report the
rent paid over to the property owner. See Regulations
section 1.6041-1(e)(5)

Bookkeeper appears to be practicing unliscenced tax advice. RE management firm could be on the hook for this.

In this situation I would tell my client the form is incorrect & explain the ramifications.

I would report gross rental income on the scedule E. Being doubtful that the RE firm would correct the 1099, I would tell my client that when they get a CP (whatever) notice on this, I would the give the client the choice of me responding to IRS for $XXX or refer the client to the RE Management firm to respond to the Service to explain the discrepancy.

[taxea]

No, she is not correct. After all, they DO pay the rent to the client, don't they? They should be sending him the net rents every month, or crediting them to an account in his name. They may deduct a commission, and some reduce the rents in Box 1 by this amount. But it still goes in Box 1. I do these for a client who has a leasing agreement with a mall owner, and the amounts are always shown in Box 1. The client collects the rents, and they are disbursed to the owner. The owner gets the 1099.

They are an agent for the owner. They do not pay rent to the owner, they collect it and transfer it to the owner.

[BP.]

Would it be a problem if we cannot get them to make the correction? If the taxpayer reports the "other income" in an Schedule E, will he receive a CP2000 down the road?

From the instructions for the recipient that accompany the 1099MISC (not the instructions for preparing the 1099MISC):

"Form 1099-MISC incorrect? If this form is incorrect or has been issued in error,
contact the payer. If you cannot get this form corrected, attach an explanation
to your tax return and report your income correctly."

Such an "explanation" could be to put the 1099MISC on line 21, then reverse the figure on another line 21 entry with a notation like "Transferred to Schedule E gross rents." Might forestall future CP notice.

Did a quick check on a few I have in some completed files, and those rents are reported in the Rents box by the RE management agency.

[Burke]

They are an agent for the owner. They do not pay rent to the owner, they collect it and transfer it to the owner.

They are still required to complete the 1099MISC to the owner for the rents collected on his behalf. It's the renters who do not have to report, since they pay an agent.

[taxea]

This is true but it doesn't go on Ln 21 as was suggested. This is a Sch E. The agent also probably provided expenses paid from the client's escrow account.

[Burke]

Agencies who manage vacation properties do this all the time. Every year I have to get a reconciliation of these from one in Myrtle Beach so I can reconcile with the 1099. It took 2 years, but I finally have got them to do the form right and show the gross amount.