How to Report a 1099-K for Rental Income
A rental 1099-K reports gross transactions, not your taxable profit. Learn how to correctly account for this figure and your expenses for an accurate tax return.
Receiving a Form 1099-K can be confusing for property owners who use online platforms to manage their rentals. This form documents gross payment transactions processed on your behalf, and understanding its purpose is the first step toward accurate tax reporting. This guide is designed for landlords and property owners who have received this form and need to navigate their tax obligations.
Understanding Form 1099-K for Rental Properties
Form 1099-K, Payment Card and Third Party Network Transactions, is an informational document sent to you and the IRS. It is issued by Third-Party Settlement Organizations (TPOs), which are companies that process payments from your guests, including popular payment apps and online rental marketplaces. These entities are required to report the total gross amount of payments they processed for you during the year.
The form’s purpose is to provide the IRS with visibility into transactions on these networks, meaning rental payments from guests processed online are being reported. It is important to recognize that receiving a 1099-K does not mean the entire amount shown is taxable profit. The form reports the gross transaction volume, not your net income.
Federal reporting requirements dictate when a TPO must issue a 1099-K. For the 2024 tax year, the threshold is for gross payments exceeding $5,000. The IRS has announced plans for a phased reduction of this threshold for future years. Regardless of whether you receive a form, you are still required to report all rental income on your tax return.
Reconciling the 1099-K with Your Actual Income
The figure in Box 1a of Form 1099-K represents the gross amount of all payment transactions processed by the TPO. This number is calculated before the deduction of any fees or other adjustments. Therefore, the amount shown on the form is often higher than the income deposited into your bank account, requiring a reconciliation to determine your true gross rental income.
To reconcile the Form 1099-K amount, you must identify amounts included in the gross total that do not represent income to you. Common items to account for include:
- Service fees charged by the rental platform, which can range from 3% to 15% of the reservation cost.
- Cleaning fees paid directly to a third-party service.
- Refunded security deposits returned to guests.
- Any lodging or sales taxes that the platform collected and remitted on your behalf.
For instance, imagine your Form 1099-K shows $30,000 in Box 1a. Upon reviewing your transaction history, you find the platform charged $3,000 in host service fees and that $1,000 in security deposits were refunded. In this scenario, you would report the $30,000 gross amount as income, and the $3,000 in fees would be treated as a separate business expense.
Most online rental platforms provide an annual earnings summary or transaction history that can be used for this reconciliation. These reports itemize each transaction, showing the gross booking amount, platform fees, and other adjustments. Comparing this detailed summary to your Form 1099-K is the most effective way to calculate the correct figures for your tax return.
Reporting Rental Income and Deductions on Your Tax Return
Rental income and associated expenses are reported on Schedule E (Form 1040), Supplemental Income and Loss. This form is used to calculate your profit or loss from rental real estate activities. The first step is to report your total gross rental income, which is the figure from your Form 1099-K and other records, on Line 3 of Schedule E.
After reporting your gross income, you can deduct the ordinary and necessary expenses incurred to manage your rental property. These deductions reduce your taxable income. Common deductible expenses for a rental property include:
- Advertising costs, cleaning, and maintenance fees
- Insurance premiums
- Mortgage interest paid on the property loan
- Property taxes and the cost of repairs
Other deductions include utilities, management fees, and the service fees charged by the rental platform. For 2024, the standard mileage rate for miles driven for your rental activities is 67 cents per mile. These expenses are entered on the appropriate line in the “Expenses” section of Schedule E.
By subtracting your total expenses from your gross rental income, you will determine your net rental income or loss. This final figure from Schedule E is then carried over to your main Form 1040. You must report income and expenses for each individual rental property separately on its own Schedule E.
Essential Recordkeeping for Rental Activities
Maintaining thorough and organized records is a requirement for any rental property owner. These records serve as the proof to substantiate the income and expense figures you report on your tax return. In an IRS audit, you will be required to produce documentation to verify your claims, and without adequate records, you risk having deductions disallowed.
Your recordkeeping system should include copies of all Forms 1099-K you receive. You should also download and save the annual summary statements provided by the rental platforms you use. These statements offer a detailed breakdown of transactions for reconciling your income and identifying deductible platform fees.
Bank statements for the account where rental income is deposited and expenses are paid are also important documents to retain. You must keep all receipts and invoices for every expense you deduct, including for repairs, cleaning services, and supplies. For travel expenses, a detailed mileage log is necessary to support your deduction. It is advisable to keep these records for at least three years after filing your tax return.