Should utilities paid with your rent be included on a 1099-MISC for a business rental? First, it's important to know how the 1099-MISC is used by the IRS. The person on the payer end uses this form to report payments made in the course of a "trade or business" to someone who is not an employee. This typically means someone who provides a service to your business.
A landlord who rents out the property that you use for your business should also be represented on your 1099-MISC. If you've paid $600 or more in rent to someone in 2020, it will need to go on your 1099-MISC. This helps the IRS to compare payments made with income reported. This brings us to the question of whether or not you need to report utilities paid with rent on your 1099-MISC.
Read More: What Do Utilities Consist Of?
Should You Report Utilities Paid With Rent on Your 1099-MISC Form?
Some landlords fold utility costs into the rent. Under this setup, tenants usually pay a higher monthly rental rate in exchange for not having to handle individual utility payments. However, you technically don't know exactly how much of your rent is being applied to the cost of utilities.
What should you do for your 1099-MISC if your landlord rolls utilities into your rental total? The answer is that you should report the full rental cost that you paid even though some of it is being applied to utilities. Technically, the entire amount you paid is considered rent under this setup. It will be up to your landlord to report the breakdown of rent payments versus utility payments.
What about utility bills that you pay directly? While utility bills technically count as payment when they're rolled into your rent, they don't belong on a 1099-MISC if you pay utility companies directly. This also applies if your landlord is the one who passes along monthly utility bills to you that arrive from utility providers to allow you to pay directly.
1099-MISC and Utilities From the Landlord's Perspective
If you're a landlord who has decided to roll utility costs into monthly rent, you'll need to handle the situation using your deductions. Folding utility costs into a flat monthly rental rate means that not all of the money you collect is technically rental income. The way to use this to lower your tax liability on your rental income is to deduct the amount you paid in utility expenses on behalf of your tenant for the year from the total rent you charged for the year.
Read More: What Happens If I Get a 1099 After I File My Taxes?
The Bottom Line on How to Handle Utilities Included With Rent on a 1099-MISC
If you paid a landlord a flat rate that folds utility costs into your total rent cost in 2020, you should be including the full amount paid on your 1099-MISC. There's no need to try to do the math to figure out how much of your payment went to utility costs. That's your landlord's task to figure out when filing taxes.
Your role is simply to report the full amount paid to allow the IRS to get an accurate cross-referencing record. If you merely paid utilities separately from rent, just report your full rent total without factoring in utilities at all.
Read More: Can I Deduct My Rent on My Tax Return?
Adam Luehrs is a writer during the day and a voracious reader at night. He focuses mostly on finance writing and has a passion for real estate, credit card deals, and investing.