Payment to husband alone, for a rental TBE property

[belmar77]

What is the name of your state? Florida
As per Florida law, a tenants by entirety (TBE) property treats the husband and spouse as a unit. Instead of each spouse holding a partial interest, each spouse is considered to own the entire property.



I have a TBE rental property with my husband in Florida from which we get $300 rent per month. This is our primary source of income to survive. Last year, in February 2021, the tenant paid the property repair costs of $300 and discussed that matter and made an agreement with my husband alone (I did not sign any agreement and I was not aware). That agreement between my husband and tenant states that the rent for March 2021 is waived. Thereby the tenant did not pay a monthly rent for March 2021 (i.e., tenant deducted that $300 towards March 2021 rent and did not pay March 2021 rent). My husband also did not tell me this matter until now and I did not notice this until my husband informed me now.



Now, I and my husband are filing tax returns with IRS (we always file jointly and are doing the same for year 2021 also). While filing 2021 taxes with IRS, where should we show that $300 (paid by tenant towards repair costs)? As part of my husband’s income; or as part of our joint income of me and my husband (I don’t think so because I did not sign that agreement with the tenant. But I am not sure)? Or as part of the income from the rental property (I don’t think so because I did not sign that agreement with the tenant. But I am not sure)? Or it does not matter under which category we show that $300 income?

 

[PayrollHRGuy]

What is the name of your state? Florida
As per Florida law, a tenants by entirety (TBE) property treats the husband and spouse as a unit. Instead of each spouse holding a partial interest, each spouse is considered to own the entire property.



I have a TBE rental property with my husband in Florida from which we get $300 rent per month. This is our primary source of income to survive. Last year, in February 2021, the tenant paid the property repair costs of $300 and discussed that matter and made an agreement with my husband alone (I did not sign any agreement and I was not aware). That agreement between my husband and tenant states that the rent for March 2021 is waived. Thereby the tenant did not pay a monthly rent for March 2021 (i.e., tenant deducted that $300 towards March 2021 rent and did not pay March 2021 rent). My husband also did not tell me this matter until now and I did not notice this until my husband informed me now.



Now, I and my husband are filing tax returns with IRS (we always file jointly and are doing the same for year 2021 also). While filing 2021 taxes with IRS, where should we show that $300 (paid by tenant towards repair costs)? As part of my husband’s income; or as part of our joint income of me and my husband (I don’t think so because I did not sign that agreement with the tenant. But I am not sure)? Or as part of the income from the rental property (I don’t think so because I did not sign that agreement with the tenant. But I am not sure)? Or it does not matter under which category we show that $300 income?

You're signing or not signing the agreement doesn't mean a thing. And I'm sure one of the tax folks is going to come along and clarify but that $300 you didn't get paid is not income. It is an expense. Not much different than had the tenant paid you and you spent the $300 on the repairs.

 

[Ohiogal]

You would have $300 in income and then $300 in repairs. But I would wait for either @Taxing Matters or @LdiJ to come on to see you. They do taxes. I am just an attorney.

 

[LdiJ]

What is the name of your state? Florida
As per Florida law, a tenants by entirety (TBE) property treats the husband and spouse as a unit. Instead of each spouse holding a partial interest, each spouse is considered to own the entire property.



I have a TBE rental property with my husband in Florida from which we get $300 rent per month. This is our primary source of income to survive. Last year, in February 2021, the tenant paid the property repair costs of $300 and discussed that matter and made an agreement with my husband alone (I did not sign any agreement and I was not aware). That agreement between my husband and tenant states that the rent for March 2021 is waived. Thereby the tenant did not pay a monthly rent for March 2021 (i.e., tenant deducted that $300 towards March 2021 rent and did not pay March 2021 rent). My husband also did not tell me this matter until now and I did not notice this until my husband informed me now.



Now, I and my husband are filing tax returns with IRS (we always file jointly and are doing the same for year 2021 also). While filing 2021 taxes with IRS, where should we show that $300 (paid by tenant towards repair costs)? As part of my husband’s income; or as part of our joint income of me and my husband (I don’t think so because I did not sign that agreement with the tenant. But I am not sure)? Or as part of the income from the rental property (I don’t think so because I did not sign that agreement with the tenant. But I am not sure)? Or it does not matter under which category we show that $300 income?

It is normal rent as part of the income on Schedule E and then it is deducted as a repair cost. So, in the end it is a wash. It is irrelevant that you didn't specifically participate in the decision to handle the repair that way.

 

[belmar77]

Thanks each one of you, appreciated. Now the matter is clarified and I am happy.

I have another related question. We (I and my husband) did not pay the Florida sales tax because the agreement my husband signed with the tenant (for paying the repair costs) states that the rent is waived for the month of March 2021. (Note that Florida sales tax is around 7% of the rental income for each month: https://floridarevenue.com/taxes/taxesfees/Pages/sales_tax.aspx )

Do we need to pay the Florida sales tax of around 7% for March 2021 for that rental income, which we did not pay? (note: we stated in that Florida sales tax form we submitted in March 2021 that the rental income is zero for March 2021 and put the sales tax also as zero)

 

[LdiJ]

Thank you and I too wait for the other experts to provide the feedback. By the way, I have another related question also. We (I and my husband) did not pay the Florida sales tax because the agreement my husband signed with the tenant (for paying the repair costs) states that the rent is waived for the month of March 2021. (Note that Florida sales tax is around 7% of the rental income for each month: https://floridarevenue.com/taxes/taxesfees/Pages/sales_tax.aspx )

Do we need to pay the Florida sales tax of around 7% for March 2021 for that rental income, which we did not pay? (note: we stated in that Florida sales tax form we submitted in March 2021 that the rental income is zero for March 2021 and put the sales tax also as zero)

I am not familiar with the FL sales tax rules but since it definitely was income (prior to expensing it as repairs) it is quite possible that you should have paid sales tax on it.

 

[belmar77]

Greatly appreciate your feedback!

 

[Stephen1]

Let jump in here as a former landlord (sold in September) and spouse of a nitpicky bookkeeper. And no, my experience was not in Florida.

Rental businesses usually are run as “cash” not accrual.

• Therefore, your income is what you actually received not what should have been paid. Tenant didn’t pay rent to you in March? Then you don’t have income to report for March.
• Expenses are what you actually paid. Therefore, you DO NOT have the expense of the repairs the tenant did/paid for. If you had received the rent (income) and then you paid for the repairs you would have an expense to list on your Schedule E that would off-set the income resulting in $0 taxable income. But you don’t get to claim the expense you didn’t pay as that would result in a loss for the month.

Sales tax to the state: To me the question to be asked has to do with what the state counts as income that is taxed. As you didn’t actually receive the money it might not be counted. On the other hand, since you received a benefit from applying it to the repair reimbursement that might be counted. You will have to look up how Florida defines things. For the IRS, when a business swaps goods or services with another business, the value of those goods or services is supposed to be counted.

My nitpicky bookkeeper wouldn’t have allowed me to do what your husband did. She would have required that we receive the rent and that we pay for the repair. That way it would be totally clear in our books.

 

[davew9128]

Rental businesses usually are run as “cash” not accrual.

Oddly enough, it isn't possible to report on a completely accrual basis with rent for tax purposes, whereas rent received in advance of a due date is taxable regardless of how it is classified as a current liability for accounting purposes.

 

[belmar77]

Once again sincerely appreciate all your inputs. Let me explain the matter in more detail and request your feedback.

As per Florida law, a tenancy by entirety (TBE) property is treated as a property that belongs to the husband and wife in total: the property is not subdivided based on individual share of the couple. Instead of each spouse holding a partial interest, each spouse is considered to own the entire property. A TBE property cannot be attached by a creditor of only one member of the spouse.

I have a TBE rental property with my husband in Florida from which we get $300 rent per month. I and my husband together listed as “landlord” in the “lease agreement” and we both signed as “landlord” in the lease agreement. This property is our primary source of income to survive. Last year, in February 2021, the tenant paid the property repair costs of $300 and discussed that matter and made an agreement with my husband alone (I did not sign any agreement and I was not aware). That “repair agreement” between my husband and tenant states that the rent for March 2021 is waived. Thereby the tenant did not pay a monthly rent for March 2021 (i.e., tenant deducted that $300 towards March 2021 rent and did not pay March 2021 rent). My husband also did not tell me this matter of repair agreement” until now and I did not notice this until my husband informed me now. Because I did not sign that “repair agreement”, I am not binding to that, and that “repair agreement” is not enforceable (any kind of agreement related to a TBE property is enforceable or valid if and only if it is signed by both the husband and wife) unless otherwise specified in writing (and nothing like that is specified in writing anywhere in this case)

Now, I and my husband are filing joint tax returns with IRS (we always file jointly and are doing the same for year 2021). Based on above facts, the “repair agreement” has nothing to do with the rental property because the property is TBE and I did not sign “repair agreement” (the “repair agreement” is legally valid, only if it contains my signature and my husband’s signature, but I did not sign). Hence my goal is to make sure that I do not want to involve in that $300 and the “repair agreement” in any manner.

Is it suitable to show that $300 as my husband’s income (which he did with the tenant) alone, and which my husband eventually paid to that repair person (that is, my husband got $300 and spent that $300 from that business) while filing the joint tax returns? Alternately, is it suitable to do not show or even mention that $300 anywhere (i.e., not in my husband’s income, not in my income, not in the income from the rental property) in the joint tax returns?

 

[FlyingRon]

Your amplification doesn't change anything. The husband still doesn't need your "signature" to make agreements with the tenant (the property could be held in any tenancy, he's an owner). Nor does splitting hairs about who received payment make a darned bit of difference to joint filing, FEDERALLY (and Florida has no state income tax).

If your husband allowed the tenant NOT to pay rent for any reason (repair or not), then that money is not income to the two of you. If he did receive the money and give it back to the tenant to pay for the repair, he would have to reflect it on the sched E but the repairs would still offset the rent received.

 

[belmar77]

Sincerely appreciate your feedback. I overlooked and missed the fact that TBE is a Florida creature not Federal, as you correctly highlighted. I am sorry.

My husband signed “repair agreement” with tenant thereby the tenant did not pay rent ($300) for February 2021, instead the tenant paid (that $300) directly to the repair person: and that $300 never touched my husband’s (or my) hands.

So, if I understand your feedback correctly, neither me nor my husband needs to show that $300 anywhere in our joint tax returns for 2021 (because, according to your statement/feedback, that $300 is not income to me and not income to my husband): is it correct?

Finally, whether your statement/feedback "If your husband allowed the tenant NOT to pay rent for any reason (repair or not), then that money is not income to the two of you" will change on how the tenant is claiming that $300 in his 2021 tax return (i.e., in his tax return, whether the tenant show that $300 as it is paid to my husband (or paid as rent) or paid directly to the repair person, etc.)?

 

[doucar]

Why would the tenant show his rent payments on his federal tax return?

 

[belmar77]

Why would the tenant show his rent payments on his federal tax return?

It is commercial lease thereby the tenant claims the rent payments in his business expenses.

 

[xylene]

Does OP need to file? It sounds like they make less than 5000 a year.