Jax Tax : First, the amount they pay for the AC is income, but it is rental income in the year you receive it. So, the portion you received will be rental income in the year you receive it. The interest, interest income on 1040 sch B. The cost of the AC will be depreciated and expensed.
Jax Tax : They should not have reported it that way and should have included the portion paid as rental income and the interest as such on the 1099.
Jax Tax : You need to request they fix it. If not, file the return with an explanation as to why it is not included.
Is there a statute of limitations for fixing a 2007 Form 1099-MISC?
Jax Tax : I know you are wondering why it is reported as rental income. Just trust me it is.
The interest on the loan is interest expense paid to USPS (not interest income for Sched B). They fronted the full cost of the system. 10K was their portion of the agreement, my 20K portion was loaned to me, which I am repaying by rent deduction.
Jax Tax : They can correct it at any time.
How should the 30K appear?
Jax Tax : OK. I had it backwards.
Jax Tax : If they paid the full amount, the full amount is rental income in 2007, you will depreciate it, and you are correct, interest is an interest expense on sch e.
Jax Tax : The 30k should be reported as rental income.
Even though 20K was a loan?
Jax Tax : Yes. It is being deducted from rent so it is rent. It is reported in 2007 as rent because it is constructively considered prepaid rent. You will only report the net rent in future years.
Jax Tax : You will report the interest income in the year it is offset.
Jax Tax : No. Interest expense. Sorry, I keep doing that. You will be report the reduction for interest as an interest expense and also claim the reduction as rental income. The will offset each other.
Can I show this as a loan so it is not income, and add the full rent deductions back into the rental income? They even provided me with an amortization schedule.
Would a corrected 1099-MISC help in this regard?
Jax Tax : Think of it this way. If they were paying you full rent and you then paid them the interest, that is what it would be. This is the same thing just skipping a step.
Even though I am filing late, I thought I had paid more than sufficient taxes at the time. If the 30K is shown as income, then I will face interest/penalties...
Jax Tax : Yes because the IRS is expecting the $30k to be on sch C the way it is reported which self.employment tax is applied. 15.3 percent. They should report actual rent and the 30k as rental income to you in 2007. In other years they shouldn't be reporting the net rent paid plus the interest reduction as rent to you. You report the rent and deduct the interest.
Jax Tax : That is true. You can use form 843 to request the be reduced. Also make sure to use any losses from other years if available. Look at 2006 for sure.