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Merlo
Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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On a 1099 Box 1, does this include management fees?

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Question about 1099-Misc.BOX 1 (Rent). We are a property management company established this year and we are preparing the 1099 form for the home owners. Is the Box 1 Rent for the exact (net) amount (Rent minus expenses/as an amount of monthly statement shows) the owners have received or the rent before the expenses (gross rent)? Let's say that one owner receives $900 every month ($1,000 rent/month minus $100 management fee/month). In this case this owner's Box 1 is $12,000 ($1,000 x 12 months) or $10,800 ($12,000 - $1,200)?
Submitted: 6 years ago.
Category: Tax
Expert:  Merlo replied 6 years ago.

The amount of rent you should report in box 1 is the gross amount of rent the owner receives before any deductions before management fees or other expenses.

The owner will deduct those expenses from the gross income on his own when he files his tax return.

Customer: replied 6 years ago.

Our owners will be asking why we report the gross income before our management fee. Wouldn't the gross income be what the owner is supposed to receive after our fee? We would like a simplified way of explaining this.

Expert:  Merlo replied 6 years ago.

The gross amount of rent that is charged to the tenant is what income to the landlord is. If you deduct your management fees before sending him the balance of the rent that is simply an expense he reports on his Schedule E which he files to report his rental income and expenses.

As an example, assume the gross rent paid is $1,000 per month, but you withhold $100 a month for management fees and only send him a check for $900. On the 1099 form you report the gross rental process of $12,000 for the year. When the property owner files his taxes, he reports the $12,000 he received as rental income, and then claims a deduction for the $1,200 he paid in management fees. He still ends up only paying taxes on the net rental income after the fees are deducted, but this is the way it must be reported. You cannot simply report to him the net proceeds that were paid. His actual rental income is the gross amount charged to the tenant. The management fees are a separate expense which must be accounted for as a separate deduction.

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