Rental Property Managed by a Property Management Co

[Tax Prep by Deb]

OK, I need some opinions on this.

I have a client (active participation, even though property management is involved, they do make decisions on renters as well as doing some of the repairs themselves, ect...)  They receive a statement from the management that shows all the monies that came in, what they took for their commission and what they spent for repairs, ect.. and what my clients actually received.

In the past I would take the total rent then deduct everything out, however this year I noticed the property management statement shows some large what they are calling repairs, the largest of which is around 4,000.  I am quite sure my client did not file a 1099 to the person making the repairs as this was handled thru the property management.  My concern is if I enter things the way I've always done it and answer that no 1099 needed, this will cause a problem.  Any suggestions?  Should we maybe 1099 the property management?

[Possi]

I call my management companies for details on questionable figures. They usually don't mind giving me the details.

One had "misc" listed with about $800 this year. I told them I don't report "misc" expenses, and I need to know what it is. They didn't mind at all.

[Gail in Virginia]

I only have one property management company that I deal with, and they typically give my client a 1099 for the net rent paid through them.  The client does not pay the management company; the management company collects the rent, deducts their fee and any expenses, and forwards the balance to the owner.  They then give the owner a 1099 for the NET.  I suppose, if any of the rent is paid by a business to the property management company, they get a 1099 for the gross from the person paying the rent.  Since it is residential property, I doubt that they get any 1099s.

[jklcpa]

Unless you've determined that they are in the trade or business of renting property, they don't need to issue 1099s for the repairs. Hiring a management company should indicate that they aren't acting as a trade or business, but that this is more of investment activity.  It's also possible that the repairs were done by someone operating as a corporation and that 1099s would not be required either way.

[Tax Prep by Deb]

Thank you all for your replies.  That was the conclusion I also came up with.  If the management company hired these people then I would assume they would be the one to 1099 if needed.

I like to put some of the responsibility on my clients so I will have them contact the property management and see if we can get a better breakdown.  I have several questions for them.

[Roberts]

I'd still breakdown the rent versus expenses on the return like you've done previous. Just my own personal preference to show it every year and it helps make sure everything is on there and comparable year after year.

I'd wonder if the $4,000 repair isn't actually an item that should be depreciated? On management statements like that, sometimes they don't show those things very well but I'm sure it's in your questions. (I actually really love doing rental property returns - weird)

[Possi]

I probably shouldn't chime in on this, but I will step out... When is it active, material participation and when is it passive? If there is a management company managing the rental, why is it not passive?

http://www.thebestaddressintown.com/agents-blog/irs-material-participation-rules-active-participation-vs-material-participation.html

IN PART; "There are several tests for active material participation. A taxpayer qualifies by meeting any one of the qualifications.  A material participant must either contribute 500 hours per year to the business activity or substantially all of the participation for anyone involved in the business.  Another way to qualify is by participating at least 100 hours during the year when this constitutes as much as any other participant in the activity."

[Tax Prep by Deb]

Sorry if I confused you.  It is a passive activity, but they do actively participate in decision making ect...  I just wanted to make sure in my first post, that I indicated that the agency isn't in 100% control.  My clients are very involved in case that made a difference.

[joanmcq]

Active participation doesn't require 500 hours. It's much less of a standard to meet than material participation.