Tenant reimbursement of property insurance

Forum|Forum|3 years ago
December 28, 2022
2 replies
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Our LLC paid an annual premium for property insurance in October 2021 on a commercial building. The tenant reimbursed the LLC on a quarterly basis starting in November 2021. We did not show the property insurance premium as an expense in 2021 and did not include the reimbursement in November as income. In 2022 the LLC sold the building so there will be no annual premium due in 2022. The tenant paid reimbursements in Nov 2021, Feb 2022, May 2022 and August 2022.

Are the reimbursements paid in 2022 considered income? Since we never claimed the reimbursements as income in the past and never claimed the insurance premium as an expense in the past, I believe that these reimbursements should not be considered income for 2022. Help?

Not A Product Question

Best answer by Anonymous_

See https://www.irs.gov/businesses/small-businesses-self-employed/tips-on-rental-real-estate-income-deductions-and-recordkeeping

Anonymous_Answer

Employee

See https://www.irs.gov/businesses/small-businesses-self-employed/tips-on-rental-real-estate-income-deductions-and-recordkeeping

chrissim2Author

I guess my real question is: if the LLC has not claimed the reimbursements or taken an expense deduction for the property insurance premium for approximately 3 years, can the LLC just not claim the reimbursements made in 2022 but technically count it as a "payback" rather than rental income? It's now an issue because the tenant paid back the reimbursement over two tax years. Help???

Anonymous_

Employee

I am not certain what you mean by the term "payback".

Also, it appears as if you edited your entire original post after I posted an answer but, regardless, the payment is going to be considered income to the LLC.

Carl11_2

Employee

Typically, all income received from all sources for any reason concerning rental property, is included as rental income. Period. Then all expenses paid to any vendor for any reason pertaining to the rental property, by the owner, is a rental expense. (except for qualified property improvements.)

In your case, if the payment amount received from the tenant was "exactly" the amount you paid to the insurance company, then the two negate each other out "provided" both transactions occurred in the same tax year. If both did not occur in the same tax year, then you have a reportable transaction... be it additional income from the tenant, or an insurance premium payment to the insurance company.

Mike9241

@Carl11_2 @chrissim2 since this is a commercial rental the taxpayer is likely and in fact, is supposed to receive a 1099-MISC.

so they need to look at it to see if it includes the insurance. if it does then they should use that number to report the rental income and deduct the insurance payments. otherwise, there will be a mismatch which would likely generate an IRS letter.