Is it legal for a landlord to report a large payment to a tenant using Form 1099?
I believe it's not only legal, but correct and required. A 1099 is how a business reports payments to others, and they're required by the IRS to send them for payments of $600 or more (for miscalleneous payments like this). The payment is an expense to the landlord and income to you, and the 1099 is how that's documented (although note that if they don't send you a 1099, it's still income to you and you still need to report it as such). It's similar to getting a 1099-INT for interest payments or a 1099-DIV for dividend payments. You'll get a 1099-MISC for a miscellaneous payment. If you were an employee they'd send you a W-2, not a 1099. "It is legal.  They're probably going to give you a 1099-MISC, which is required of businesses for many cash payments over $600 in value to all sorts of counterparties.  (Probably box 3 of 1099-MISC as is typical in ""cash for keys"" situations where one is paid to vacate early)   A 1099-MISC is not necessarily pure income, but in this case, you do have money coming in.  This money isn't a return of your security deposit or a gift. The payment could possibly be construed by you as a payment to make you whole, but the accounting for this would be on you.  This is not a typical situation for IRS reporting.   However, if you are uncomfortable with potentially explaining to the IRS how you implemented advice from strangers over the internet, the safest course is to report it all as income.  Look at it this way: you did enter into a mutual contract, where you were paid consideration to release your leasehold interests in the property."
"It says that you are exempt ""as long as such interest income is not effectively connected with a United States trade or business"". So the interest is from money earned from doing business with/through AirBnb, a US company. So you will have to report it. Even if your bank doesn't send you a 1099-INT, you have to report it, unless it is under $0.49 because the IRS allows rounding." "People who rent an apartment will typically pay by check. Probably 90% of the checks I have written are for rent. To some extent this falls under the previously mentioned ""payments to another person"" rule." Typically that applies if the broker Form 1099-B reports an incorrect basis to the IRS.  If the Form 1099-B shows incorrect basis relative to your records, then you can use 8949, column (g) to report the correct basis.  The 8949 Instructions provide a brief example. http://www.irs.gov/pub/irs-prior/i8949--2013.pdf Although you have an obligation to report all income, and hence to report the true basis, as a practical matter this information will usually be correct as presented by the broker.  If you have separate information or reports relating to your investments, and you are so inclined, then you can double-check the basis information in your 1099-B. If you aren't aware of basis discrepancies, then the adjustments probably don't apply to you and your investments can stick to Schedule D. "I think you may have a significant misunderstanding here.  You have been renting your property out for two years, now.  There is no special ""roommate"" clause in the tax code; roommates are renters, and the rent they pay is rental income.  (If they were roommates in a property you both rented from a third party, that would be different.) See publication 527, chapter 4 for more details on the subject (search on ""Renting Part of Property"").  You should be: You may also consider ""Not renting for profit"" section, which may be closer to what you're actually thinking - of changing from ""Renting not for profit"" to ""Renting for profit"".  Not rented for profit means you can report on your 1040 as opposed to filing Schedule E, but it does mean you have to actually not make a profit (and remember, some of the money that goes to paying the mortgage is not deductible on this side of things since it's your property and you'll get that money back, presumably, when you sell it). If that is what you're asking about, it sounds like it's just a matter of money.  Are you going to start making money?  Or, are you going to start making enough significant upgrades/etc. to justify the tax deduction?  You should consider the actual, specific numbers carefully, probably with the help of a CPA who is familiar with this sort of situation, and then make the decision that gives you the best outcome (keeping in mind that there may be long-term impacts of switching from not-for-profit to for-profit rental treatment)." The company that's apparently going to pay this rent wants to treat it as a business expense.  They are asking for your SSN because they expect to issue a 1099-MISC. (They probably gave you a Form W-9? It's not mandatory but it's common to request a taxpayer ID on this form.) There are a couple of issues at play here: If you're under audit - you should get a proper representation. I.e.: EA or CPA licensed in California and experienced with the FTB audit representation. There's a penalty on failure to file form 1099, but it is with the IRS, not the FTB. If I remember correctly, it's something like $50 or $100 per instance. Technically they can disqualify deductions claiming you paid under the table and no taxes were paid on the other side, however I doubt they'd do it in a case of simple omission of filing 1099 forms. Check with your licensed tax adviser. Keep in mind that for the IRS 2011 is now closed, since the 3-year statute of limitations has passed. For California the statute is 4 years, and you're almost at the end of it. However since you're already under audit they may ask you to agree to extend it. "I am not a lawyer nor a tax accountant, so if such chimes in here I'll gladly defer. But my understanding is:  If you're romantically involved and living together you're considered a ""household"" and thus your finances are deemed shared for tax purposes. Any money your partner gives you toward paying the bills is not considered ""rent"" but ""her contribution to household expenses"". (I don't know the genders but I'll call your partner ""her"" for convenience.) This is not income and is not taxed. On the off chance that the IRS actually investigated your arrangement, don't call any money she gives you ""rent"": call it ""her contribution to living expenses"". If you were two (or more) random people sharing a condo purely for economic reasons, i.e. you are not a family in any sense but each of you would have trouble affording a place on your own, it's common for all the room mates to share the rent or mortgage, utilities, etc, but for one person to collect all the money and write one check to the landlord, etc. Tax law does not see this as the person who writes the check collecting rent from the others, it's just a book-keeping convenience, and so there is no taxable transaction. (Of course the landlord owes taxes on the rental income, but that's not your problem.) In that case it likely would be different if one person outright owned the place and really was charging the others rent. But then he could claim deductions for all the expenses of maintaining it, including depreciation, so if it really was a case of room mates sharing expenses, the taxable income would likely be just about zero anyway. So short answer: If you really are a ""couple"", there are no taxable transactions here. If the IRS should actually question it, don't refer to it as ""collecting rent"" or any other words that imply this is a business arrangement. Describe it as a couple sharing expenses. (People sometimes have created tax problems for themselves by their choice of words in an audit.) But the chance that you would ever be audited over something like this is probably remote. I suppose that if at some point you break up, but you continue to live together for financial reasons (or whatever reasons), that could transform this into a business relationship and that would change my answer." __________ _________ ____________ Therefore, I get the outcome I want.   The human brain must think: it can't stop.  If you don't believe me, try meditating.    The mental process of putting stuff in those blanks is called rationalization.  This is a bored mind who wants something.  If that mind is not particularly well disciplined, those things will get pretty unrealistic.   That is what has happened to your friend.  Landlords do not like drama.  They do like money.  Generally a landlord will be happy to take your money any reasonable way that they can achieve.  It sounds like either your landlord lost the ability to do credit cards, or he got sick of paying the 3% overhead, or some other overhead costs that may be higher because he does not have the right credit card merchant service.  For instance PayPal Here charges 2.70% flat, but a traditional swiper can cost up to $2000 a year in trumped up fees and charges.   As soon as the landlord calls the rent a debt, he has to take cash.  But in most places, rental is at-will, and the landlord can evict for any reason or no reason at all (except race, creed, color, national origin, family, running a daycare center and a few other protected reasons)...  and there's not a whole lot you can do about it.  Even for a lease he can trump up a reason.  Your friend would be wise to have a meeting of the minds with the landlord about how he'd like to pay.  Business is done by mutual consent, not non-consensual legal tricks.  I agree, I wouldn't do ACH either.   One problem with ACH (or credit) is the landlord can charge anything he pleases, and that's when they start sneaking in devious surcharges for things.  Once he's pulled the money out, you're really at a disadvantage to argue, since he already has the money. And it's really difficult to do a chargeback on part of a payment, so you end up having to chargeback the entire rent check, and now he can evict you. You report each position separately. You do this on form 8949. 7 positions is nothing, it will take you 5 minutes. There's a tip on form 8949 that says this, though: For Part I (short term transactions):  Note. You may aggregate all short-term transactions reported on   Form(s) 1099-B showing basis was reported to the IRS and for which no   adjustments or codes are required. Enter the total directly on   Schedule D, line 1a; you are not required to report these transactions   on Form 8949 (see instructions). For Part II (long term transactions): Note. You may aggregate all long-term transactions reported on Form(s)   1099-B showing basis was reported to the IRS and for which no   adjustments or codes are required. Enter the total directly on   Schedule D, line 8a; you are not required to report these transactions   on Form 8949 (see instructions). If the 1099B in your case shows basis for each transaction as reported to the IRS - you're in luck, and don't have to type them all in separately. You are expected to file 1099 for each person you pay $600 a year. I.e.: not a one time payment, but the total over the course of the year. Since we don't know how much and what else you paid - we cannot answer this question. The real question you're asking is that if you're treating the enterprise as a hobby, whether you're supposed to file 1099s at all. The answer to that question is yes. You should talk to your tax adviser (a EA/CPA licensed in your state) about this, and whether it is the right thing for you to do treating this as a hobby at all. Maybe you should consider setting up a Taxpayer Identification Number (TIN) for your business dealings as a landlord and consider providing that instead of your SSN for this type of thing. I am assuming (if this is legitimate) they want it so they can send you a 1099 as they might be obligated to do if they are claiming the rent as a business expense. Also, I'd suggest having the tenant tell their employer to contact you directly. There is no need for the tenant in this situation to also get your SSN/TIN. "I agree that you should have received both a 1099 and a W2 from your employer. They may be reluctant to do that because some people believe that could trigger an IRS audit. The reason is that independent contractor vs employee is supposed to be defined by your job function, not by your choice. If you were a contractor and then switched to be an employee without changing your job description, then the IRS could claim that you should have always been an employee the entire time, and so should every one of the other contractors that work for that company with a similar job function. It's a hornet's nest that the employer may not want to poke. But that's not your problem; what should you do about it? When you say ""he added my Federal and FICA W/H together"", do you mean that total appears in box 4 of your 1099? If so, it sounds like the employer is expecting you to re-pay the employer portion of FICA. Can you ask them if they actually paid it? If they did, then I don't see them having a choice but to issue a W2, since the IRS would be expecting one. If they didn't pay your FICA, then the amount this will cost you is 7.65% of what would have been your W2 wages. IMHO it would be reasonable for you to request that they send you a check for that extra amount. Note: even though that amount will be less than $600 and you won't receive a 1099 in 2017 for it, legally you'll still have to pay tax on that amount so I think a good estimate would be to call it 10% instead. Depending on your personality and your relationship with the employer, if they choose not to ""make you whole"", you could threaten to fill out form SS-8. Additional Info: (Thank you Bobson for bringing this up.) The situation you find yourself in is similar to the concept of ""Contract-to-Hire"". You start off as a contractor, and later convert to an employee. In order to avoid issuing a 1099 and W2 to the same person in a single tax year, companies typically utilize one of the following strategies: Your particular situation is closest to situation 2, but the reverse. Instead of retroactively calling you a W2 employee the entire time, your employer is cheating and attempting to classify you as a 1099 contractor the entire time. This is frowned upon by the IRS, as well as the employee since as you discovered it costs you more money in the form of employer FICA. From your description it sounds like your employer was trying to do you a favor and didn't quite follow through with it. What they should have done was never switch you to W2 in the first place (if you really should have been a contractor), or they should have done the conversion properly without stringing you along." Slightly abbreviated version of the guidance from NOLO.com California state law limits credit check or application screening fees landlords  can charge prospective tenants and specifies what landlords must do when accepting these types of fees. (Cal. Civ. Code § 1950.6.)  Here are key provisions: I am not a lawyer, but it would seem you have two options if you catch a landlord violating these rules. An idea to avoid the whole problem in the first place: Get a copy of your credit report yourself and take a copy with you to meet the landlord. If they want an application fee, ask why they need it making it clear you know the above law. If they say for a credit report offer to give them a copy in lieu of the fee. With a $40,000 payment there is a 100% chance that the owner will be claiming this as a business expense on their taxes.  The IRS and the state will definitely know about it, and the risk of interest and penalties if it is not claimed as income make the best course of action to see a tax adviser. Because taxes will not be taken out by the property owner, the tax payer should also make sure that the estimated $10,000 in federal taxes, if they are in the 25% tax bracket, doesn't trigger other tax issues that could result in penalties, or the need to file quarterly taxes next year. This kind of extra income could also result in a change or an elimination of a health care subsidy. A unexpected mid-year  change could trigger the need to refund the subsidy received this year via the tax form next April. In general that's illegal. If you're a W2 employee, you don't miraculously become a 1099 contractor just because they pay you more. If your job doesn't change - then your status doesn't change just because they give you a raise. They can be sued (by you, and by the IRS) for that. Other issues have already been raised by other respondents, just wanted to point out this legal perspective.