Airbnb of property owned by parents

[zeikin]

I had two clients this week tell me they rent out vacation property owned by their parents using Airbnb and I'm not sure how to report it. The adult children manage everything and collect payments reported to them on 1099-Ks in their names. The parents get nothing and are okay with this. I think the income has to go on the parents' Sched E (passive with no participation) since they are the property owners, but that seems wrong since the kids are keeping all the income and the parents would build up depreciation that will bite them when they sell the properties without getting any current benefit. Plus, the parents are not my clients. But it also seems wrong to put it on the kids' Sched C or E since they neither own nor lease the properties they are renting out. Any advice?

[taxea]

Is there a written agreement that spells out specific terms of how income and expenses are handled?
Who is on the mortgage? Who's ssn is on the 1099 from the mortgage company? If only the parents then the SCH E goes on their return.

[zeikin]

There are no written agreements between parents and children, just verbal permission from parents that kids can use the properties for Airbnb, pay the expenses and keep the net proceeds. There are no mortgages. As far as the IRS is concerned the only things visible are the 1099Ks in the names of the children.

[taxea]

There are no written agreements between parents and children, just verbal permission from parents that kids can use the properties for Airbnb, pay the expenses and keep the net proceeds. There are no mortgages. As far as the IRS is concerned the only things visible are the 1099Ks in the names of the children.

Tell them to put it in writing in detail.

[Kram BergGold]

My Take

To me the children are acting as rental agents. If the 1099-K forms come to the children, that income needs to be washed off their return and reported on Schedule E by the parents along with expenses. If the parents pay for the expenses out of their pocket then the positive cash flow to the children become some combination or a fee and a gift. If the expenses are paid by the children out of the rents received then any positive cash flow would be a fee to them.