If you own a rental property managed by a professional property management company, you’ll likely receive a 1099 form each year to report rental income for tax purposes. A common question property owners ask is: “Why does my 1099 total not match the rent I actually received?” The answer almost always comes down to prepaid rent (advance rent) — and how the IRS requires it to be reported.
What Is an Owner 1099?
An Owner 1099 is the tax form a property manager issues to property owners showing the total income collected on the owner’s behalf during the tax year. This form is typically used when the property manager collects rent and other income and then disburses funds to you.
The IRS Rule That Causes Confusion: Prepaid (Advance) Rent
The IRS considers advance rent taxable in the year it is received, even if the landlord (owner) doesn’t receive the funds until the following year.
Example: Your tenant pays January rent early, in December. Even if those funds aren’t distributed to you until January, the IRS says the rent is taxable in December’s tax year because it was received in that year.
Owner 1099 Calculation: The Formula
Owner 1099 Calculation
Total Operating Income + Net Change in Prepaid Rent* = 1099 Total
*The IRS considers advance rent taxable income, even if the owner does not receive the prepaid funds until January.
What Counts as “Total Operating Income”?
Total Operating Income generally includes: monthly rent collected, pet rent or pet fees (if treated as income), utility reimbursements (if collected as income), and tenant bill-backs or other rental-related income. In most cases, this reflects all income your property manager collected during the tax year, regardless of when it was disbursed to you.
What Is “Net Change in Prepaid Rent”?
Prepaid rent refers to rent collected ahead of the month it applies to. The net change in prepaid rent adjusts the 1099 total so that it follows IRS requirements. If prepaid rent increases during the year (more advance rent collected at year-end than at the start), then your 1099 total goes up. If prepaid rent decreases during the year (less advance rent held at year-end than at the start), then your 1099 total may go down.
Why Your 1099 Might Be Higher Than What You “Received”
This is the most common scenario. Example: Tenant pays January rent in December. Your property manager holds the funds and disburses them in January, but the IRS requires that rent to be counted as December income. So your 1099 includes that rent even though your bank deposit arrives later.
Why Your 1099 Might Be Lower Than Expected
This can happen when you started the year with prepaid rent held from the prior year, and that prepaid amount was paid out during this year. In that case, the prepaid rent balance decreased, which can reduce the reported income amount for the year.
Bottom Line: Your 1099 Reflects IRS Reporting Rules, Not Your Cash Deposits
Your 1099 isn’t meant to match your monthly owner statement totals or your year-end bank deposits. It’s calculated based on income received in the tax year plus any prepaid rent adjustments required by the IRS.
Need Help Understanding Your 1099?
If your numbers don’t immediately line up, don’t worry — that’s normal. A good next step is to review your year-end owner statement, your prepaid rent balance at the start and end of the year, and your monthly income reports. And as always, you should consult a qualified tax professional for advice tailored to your specific situation.
