John Bullis: Prepaid rent and Form 1099


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There is a special rule for cash-basis taxpayers regarding payments that are counted as expense in the tax year paid, but the recipient has income in the following year of actual receipt.

For example, if you mailed a check for rent expense Dec. 31, 2018, as a cash-basis taxpayer, you should claim that payment as a 2018 expense. But your landlord does not receive it until sometime in January 2019.

If your landlord is a cash-basis taxpayer, the landlord has 2019 rent income for that check you mailed Dec. 31, 2018.

The question is what should be listed on the 2018 form 1099 you send to the landlord.

The correct answer is to not include that mailed payment in the 2018 form 1099. The landlord did not have possession of that mailed check until 2019.

A statement can be attached to your tax return that explains why your expense deduction is the total of the form 1099 amount plus the mailed check of Dec. 31, 2018.

That way your landlord will not have to explain why the form 1099 and the landlord’s rent income is not the same as your deduction for 2018.

The goal is to claim what you are entitled to claim as expense and the landlord will not have a “mismatch” of rent income to explain to IRS.

Good records and adequate communication help avoid a lot of unnecessary letters, etc., with IRS for you and for the landlord.

This is just another illustration of how cash basis taxpayers benefit from the tax rules.

IRS has improved their publications and instructions for the various forms. The website is much better than it used to be. Don’t hesitate to print off the IRS instructions for a form you are doing. Also, you might benefit from looking at some of the publications, such as publication 535 “Business Expenses” or publication 583 “Starting a Business and Keeping Records” and related publications.

Did you hear, “Persistence and resilience only come from having been given the chance to work through difficult problems?” Gever Tulley

John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.