Tax implications for collecting rent on behalf of another

Forum|Forum|3 years ago
June 10, 2022
1 reply
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Hello,

I own 2 condos in the name of an LLC, and rent them out. My neighbors also own a condo in the same complex, and we collect rents for them and pay some expenses on their behalf. We do not charge them for this. All of the profit after expenses is given straight to them. Here are my beginner questions:

1) Should we give them a 1099?

2) Should the rent that we collect on their behalf be included in our "Gross Sales"?

3) Likewise, should the expenses that we pay on their behalf be included on our 1065?

4) If rent and expenses are included on our 1065, how do we deduct the profit that goes to them? It is not really an "expense"...

It seems like as all of this is a wash for us, then we could just ignore it for tax purposes, and only include items on the 1065 that belong to us. Is that wishful thinking? Does my favor to them in helping to manage their property then obligate me to do the additional accounting?

Thanks for your help!

Not A Product Question

Critter-3

No good deed goes unpunished ... if you are running all the income and expenses thru your LLC then you are obligated to give them a 1099 to get the profit off your return legally especially if you are ever audited. And you really should charge them something for your efforts.

mroberts2Author

Thanks, that's the answer to #1, but what about the rest? Once I give them the 1099 for the "net" rent, does that then mean that I should include their gross rent as part of my sales, and their expenses as part of my deductions in order to offset? And when I give them the profit (as indicated on the 1099) then what category of deduction is that? In the end, it all needs to net zero.

Critter-3

Yes you report all income & expenses the send the Net rent...box 3 form 1099-misc.

If you were in the business of managing rental properties then you should have a separate trust bank account for this client where all the income and expenses would go and you would give the owner a listing of all the income and expenses paid from that trust account to be put on their schedule e on their tax return. Part of the expenses paid from this trust account would be a fee to you for your management income which would go on your llc's tax return. But if you have not set up a separate bank account for the client AKA a trust account then you'll have to put all the income and expenses on your return and send them a net check and a 1099 reporting that net.