Received 1099-NEC from state dept

Forum|Forum|1 year ago
March 18, 2025
1 reply
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Hello,
I am a landlord with a Section 8 tenant, and the rent is paid by the Housing Authority (I received a 1099-MISC for this, which is all good).

Recently, I had to repair a garage door that was damaged by the tenant. Instead of using the tenant's security deposit, I utilized the "Landlord Mitigation Fund" (a Washington State program). The Department of Commerce reimbursed me for the repair costs and issued a 1099-NEC for the amount.

I’m now confused about how to report this 1099-NEC.

I operate as a single-member LLC and typically report rental income and expenses on Schedule E. However, when I try to report the 1099-NEC in TurboTax, it takes me through a lengthy questionnaire and seems to treat it as business income, requiring me to file it like a "business tax."

This payment was a one-time reimbursement for the repair, and I didn’t provide any services/business to receive it. Ideally, I’d like to report it as "miscellaneous income" and deduct the same amount as a repair expense.

Could you provide any guidance on how to handle this?

ThomasM125

The payment is clearly not self-employment income, so it would be appropriate to report it as "Other Income" and make a separate negative entry to other income to cancel it out. After you enter the Form 1099-NEC in TurboTax, you will come to a screen that says Does one of these uncommon situations apply? To which you need to check the box that says the income is not money earned as an employee or self-employed individual:

To exclude the income from taxation:

1. From the Federal menu in TurboTax find Wages and Income

2. Find Less Common Income

3. Choose Miscellaneous Income, 1099-A, 1099-C

4. Choose Other Reportable Income

5. Enter a description of the adjustment and the adjustment amount as a negative number

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Raj_RAuthor

Thank you for the suggestions. @ThomasM125

From 'Wages and Income' I see 2 options where we can report 1099-NEC

Self-Employment (schedule C) which we don't want
Other Common Income: This sounds right.

But going option 2: I dont see the highlighted option you mentioned. I see only this

Self employment income
farm income
hobby
lawsuit settlement
medicaid waiver payments
income should have reported on W2

Could you please let me know how to get to that screenshot you shared?

Also, to avoid taxation, can't I use that amount towards 'rental expense' and deduct? (instead of 'other income' as negative number). Wonder what's the difference between the two. May be I can't deduct the entire amount if i use as rental expense.

ThomasM125

You must be in a different version of TurboTax then mine. You can choose the "hobby" option. You may be OK deducting the expense from rental income, but rental income and especially rental losses can be treated differently than ordinary income. To be safe, you could try it both ways to see if the tax changes.

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