The question posed in the title to this post comes up periodically with clients who own rental property and who pay a property management company to oversee the property.
At the end of the year, the management company will send the owner a 1099, reporting the amount of rent collected.
Should the 1099 show the gross rent collected, or should it be the net amount after the management company factors out its fee and other deductions?
This is a rare case where I can give a straight, firm answer: the 1099 should show the gross amount of rent collected.
We find the answer in surprisingly plain language in Regulation 1.6041-1(f)(1) (my emphasis added in bold):
The amount to be reported as paid to a payee is the amount includible in the gross income of the payee (which in many cases will be the gross amount of the payment or payments before fees, commissions, expenses, or other amounts owed by the payee to another person have been deducted), whether the payment is made jointly or separately to the payee and another person.
Joe owns a rental property and hires a management company to oversee the property. The tenant pays rent of $1,000/month directly to the management company, which then takes out its $100 fee and sends Joe the remaining $900. At the end of the year, the management company will send Joe a 1099-MISC showing $12,000 of rents received ($1,000 x 12 months), which is the gross amount of rent. Joe will deduct the $1,200 of management fees on Schedule E on his tax return.