Collection At Tax Time

As a property manager, you took an ex-tenant to court for non-payment and were awarded a victory and now you want payment. This also may be a requirement due to the contract agreement with the owner of the property. But, despite your faithful attempts at collections of this judgment you have been unable to do so and now your only recourse is to forgive the debt which is passed on to the owner.
Here is a thought to help collect and soothe the owner at the same time. The Internal Revenue Service treats these uncollected funds as debt forgiveness and you can send a 1099-MISC IRS form to the renter for the amount of the uncollected rent. Property Management Companies are required to mail a copy of the amount of funds past due to the last known address (which may be your rental address) prior to January 31st, then send a notice to the IRS and let them take action. It doesn't matter if the notice is received as long as one is mailed. Mail this certified mail and retain the receipt of mailing for your records. On April 15th, the IRS will match up the 1099-MISC tax form to the renter’s taxes and ask for more tax money. They technically received a month's free rent and will be required to pay the IRS taxes on the unreported money. This money is regarded as income to them.
The negative (sort of) aspect of this scenario is that after sending the notice to the IRS you no longer have any legal recourse to collect the rent and neither does the owner. In many instances people may not want the IRS to know about the unpaid judgment especially if they are collecting public assistance making your chance of collecting much higher.
Notify the tenant you will be mailing a 1099-MISC to the IRS within ten days if payment is not received. Consider adding this as a company policy to the lease agreement. This inspires many renters to make their payments to avoid such notice.

For additional information on this and other renting articles, please visit our web site at http://www.mrpmrentals.com/
Mountain Ridge Property Management
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