I have become aware that for tax year 2022 a new law goes into effect that Federally mandates all online electronic money transactions over 600.00 through online platforms such Airbnb, Paypal, Zelle and many new Rental payment apps that have sprung up that only process rental payments. The problem is with the 1099 including "Refundable" Deposits as part of the total money the landlord received so you can't enter the 1099 as income or you will include non reportable Refundable Deposits and pay taxes on it and there is no place to report Refunds to off set it anyway on your tax return and is in conflict with the IRS reporting rules anyway. I can't seem to find a proper solution other than just not entering the 1099 at all and report my rental activity on Schedule E the same as always. Not sure how this will play out with the IRS and if it will put you in an audit status, but I can't see just changing the 1099 amount either and entering that amount either. I am seeking answers now before we wind up on April 15th frustrated with this reporting issue.

I just took a couple deposits via zelle.

I'm going to ignore any filing for now. The amount of transactions that go through these tools is huge. There's no way the IRS can keep up with everything over $600 or even pursue it.

For 35 yrs we've placed S/deposits into an escrow account called Escrow Account ****** company name. Only security money goes in there.

When a tenant leaves the security money is transferred into the regular business account. When the inspection and damages letter is sent in 5 days we have an amount we will withhold and an amount that is going back to the tenant.

The withheld goes to the P&L for that property. We then count it as rental income.

Quicken is perfect for this.

It's not your money, legally; therefore, it isn't income. Report the income as income and leave the deposits off. If the IRS comes knocking at your door, makes them a nice cup of tea, offer them a cookie, then sit down and explain (kindly, respectfully and patiently) the laws we all know but their stupid one-size-fits-all ham-fisted regs apparently forgot to take care of.

Btw, be sure that any time you accept a security deposit that it goes directly into your Trust Account for Deposits and isn't co-mingled with your other funds. This is good accounting practice as well as the law in many states. Security Deposits can't be mixed with other funds. The best practice is to accept two payments: one for 1st months rent and one for deposit, and each one goes to a separate account. That way there's no question about you co-mingling funds. Too, it would be easy to produce a ledger for any IRS auditor showing money in and money out.

As always, report what's on the 1099 as income so irs computer can see it. Then in expenses, subtract or add amounts to correct any errors.

For instance, I might list as an expense "December rent payment not received until 2022".

I don't think it's TOO much different than us as Landlord issuing 1099s to contractors - they probably didn't use all that money to line their pockets as profit, there's materials and other operating expenses for which they will account.

If you normally file your rental activity on Schedule E "Rents and Realties", I don't even think there is the ability to enter a 1099-K in it unless they modify the tax forms for 2022. The new 1099-K requirement is placed on the online money transfer companies like Paypal, Zelle, Ebay and apparently any Rent processing app like PayRent.com who uses a third party money transfer service for vendor payments.

The point is it contains "Refundable Deposits". I finally got an answer from PayRent.com CEO and he said just don't have them send Deposits through the payment platform even though they have a designation for it. Really, that's the solution! How about not including them on the 1099-K form or have a box designated on the form to isolate or separate them ! I deal with a lot of out of state parties and waiting for a check in the mail and then the bank puts a 10 day hold before it clears to seal the deal is simply bad business.

The rental industry needs to fight back on this new 1099-K requirement that poses over reporting of income and how it complicates tax filing.

I don't dispute that the government wants to crack down on people not reporting income and with a billion dollar online vacation rental business transferring that money online is a perfect means to caught non reporters. But they have now created a reporting glitch too.

The problem is my gross rent income will always be lower than what is on the 1099-K the difference being the non Reportable security Deposits. Or make them reportable on Schedule E and expense out the refunds, something has to give.

Talk about a noob mistake on my part...

I have been keeping all the deposits in the tabs with all the individual properties as far as tracking goes.

Can I keep deposits from multiple properties in a single account used only for deposits?

Side note: I filed my 2017 taxes in May of 2021. I talked to the IRS a couple of months ago, and they told me I didn't file my 2017 taxes. I later found the pdf of my taxes and the receipt for delivery from USPS. Thought to myself "Great, one more hassle on my plate".

Dear Map Leaf: It is a big deal because Schedule E does not have an expense for Security Deposits, IRS says not to report them they are not income and over inflates the value of what you receive in rents to the state too. You don't have much tax or accounting background you just don't throw something in and it's OK!

DD FL: During Covid, when you filed by paper your return was stuck in a big pile with low priority which created a back log that will take extra months to process. I did the same thing and couldn't refi because of the delays I couldn't get a transcript to the lender in time. Glad you got your refund which has no penalties for late filing!

DD FL: Forgot to mention, there is no security deposit police as in where it is held in trust. There might be a state that requires you accrue interest on it, check ¥our state. But laws do control when and how SD are used and or refunded to tenants and there are penalties if you are sued and found to be in violation them. I have a Security deposit Settlement statement that itemizes any deductions and either they get a refund of all or some or owe more.

This issue has to do with any "refundable Deposits". It's an insurance policy to discourage damages etc., the important aspect here is if it is "Refundable" and held in trust until it's disposition usually at end of their tenancy either in a form of a refund or deducted and paid to the landlord to compensate for damages incurred. We shouldn't made differences that muddle the water on this issue.

One there is no place to add a 1099-K on Schedule E unless they change they form for 2022 and then in contrast to IRS rules to not report "Refundable Deposits" you suggest people ignore that and just throw it end or wait for a possible Audit! Can't say I think that is a plausible solution that will just cause more potential problems. I use turbo tax to prepare my taxes, you think they will ask me on Schedule E for my 1099-K income? These work arounds are not sanctioned by the IRS to my knowledge. This problem for 2022 needs resolving to insure IRS does not flag for audit!

Dear Mary: So with everything electronic in tax filing now you believe you can just enter a misc statement like security deposit deduction (not reportable) to offset the 1099-K including Deposits and it won't get flagged by any system? Has this actual method been sanction and approved by any tax authority? I'm saying they created the problem, now we need to get someone to fix it not just left to start making misc adjustments or I got to find other means beside electronic payments to receive Deposits to side track the problem. That might work ok for long term local renters, but not those that have a lot more turn over in a year.

Dear Sid, not sure what your state requires, but the bottom line is making sure your rental contract includes any SD amounts charged, which the tenant you both sign and get a copy and they have their own bank statement record of paying to you too. When they move out, you sent them a settlement statement on their paid Deposit(s) itemizing all deductions if any and the difference which maybe a refund or not. Make sure you keep receipts and pictures of damages (before are good too). As long as you make the entry in your rental bank account ledger of the SD deposited including the tenants name you have a proper record. Now if you think you will run into problems having the money in the account when it comes time to process a refund, then you can link a savings account to it and move it there with all Deposits collected (including Tenant/unit info). Then transfer it back when they move out and process it how ever.

I use Money Dance now more like Quicken 2016 the last best app they had before they sold it.

Geeez..... so when I wire my kids cash for college/Bday/Holiday.... big-brother is coming to make me prove it wasn't work related (for which I have also wired them cash).

You won't get away with large sums for long before they caught on and want you to open a business account or if you use Zelle as I did, it can have limits when setting up a new recipient and then if they are savvy enough, they will figure out they can send you a partial payment for rent directly into your bank account and stave off an eviction, I know it happened to me and I discovered it via a lawyer and the tenant landlord agency in our state said that it was happening a lot during COVID. That's why I switched to a actual rent processing app where they I only allow them to set up and remit via an ACH debit system better known as e-check as they can't do any charge backs on it either.