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Old 05-19-2015, 03:56 PM
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Property manager/tenant

I hope this is in the right place, if not, please let me know so I can move it.

We own several properties and have always done out own maintenance and the like, only paying for help as needed for big jobs. We have an opportunity to change this that seems really good to us, but I have questions about the tax implications.

We have a man who would be willing to work as our property manager. He would do all landscaping, maintenance, and be a buffer between us and the tenants. He has experience and a good reputation (we've talked to people he's known most of his life). He wants $500 a month, which I think is a bargain to get back my time.

Here's where it gets tricky. He doesn't like his current living situation and would like to move into a room in one of our units. He has proposed the following arrangement. He gets the unit free ($400 a month rent) and we pay for his cell phone (a pay as you go unit) for up to $20 a month (for business calls), and $50 cash. There are no additional utilities involved. This seems like a good deal for both of us. But we are concerned about the tax consequences. If it matters, this is in Sacramento, California.

Here are my questions:

1. If we do the straight pay option, we give him a 1099 and can deduct the expense, correct?

2. If we do the rent deal, can we still deduct his "salary"? What about the phone and cash? Total value on the 1099?

3. Do we count the rent part of his pay as income? Does he?

I think that's it.

Thanks in advance for your help.



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Old 05-20-2015, 02:19 AM
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Join Date: Oct 2010
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Here are my questions:

1. If we do the straight pay option, we give him a 1099 and can deduct the expense, correct?==========>> I do not thin so UNLESS YOU hire a professional rental management firm/manager; Instead of, or in addition to, hiring a resident manager, some landlords hire property management companies to manage their rentals. A management company is an independent contractor, not your employee. The people who work for the company are its employees or independent contractorsyou are not responsible for their payroll taxes.so you need to issue them a 1099MISC.

In general, an on site manager lives at the rental property. In CA, resident managers are required if an apartment building exceeds a certain size I guess 16 or more units in CA. On site managers are employees(not self employers or contractors) of the landlords hiring them. This is so, whether they are paid a regular salary or are compensated wholly or partly with reduced rent. All of the tax rules for hiring employees apply to resident managers. So as you pay the manager a regular salary,$500 a month, you must pay and withhold federal payroll taxes, which consist of FICA taxes, FUTA taxes, and federal/ state of CA income taxes.Themanager needs to pay one-half of his Social Security and Medicare taxes through payroll deductions on his paychecks; you must pony up the other half and send the entire payment to the IRS. These taxes consist of a 12.4% OASDI tax up to an annual wage limit; in 2014, the limit was $117K. Medicare taxes are levied on all employee wages at a 2.9% rate. This combines to a total 15.3% tax employee wages up to the Social Security tax ceiling. However, you need not pay or withhold any federal payroll taxes on the value of free lodging you provide the resident manager for a rental property if the lodging is furnished for your convenience, and you require the manager to live there as a condition of employment—in other words, the manager has no choice in the matter.so,aslongas the housing was provided for the convenience of the employer then, it is not subject to income tax.I guess it is pretty technical issue; I mean you may treat it for the convenience of you as an employer(UNLESS you disallow him to move into one of the units). In reality, this is common situation.
2. If we do the rent deal, can we still deduct his "salary"? What about the phone and cash? Total value on the 1099?========.As mentioned above; you do not issue yoru employee the onsite manager a 1099MISC but a W2.

3. Do we count the rent part of his pay as income? Does he==========>>>As mentioned above; it depends but in general no. Under the rules, you furnish lodging for your convenience if you do it for a substantial business reason, other than providing the employee with additional pay. Obviously, you as a alandlord have a substantial business reason to have someone living at your rental property you need a person there 24 hours a day to take care of your tenants instead of you, maintenance, and security. The condition of employment test is met if you require the employee to accept the lodging because he needd to live at your rental property to properly perform his duties. The very nature of resident managers’ duties require that they live at the rental property. It’s a good idea to have a written employment agreement with a resident manager, including a clause requiring the manager to live at your rental property.



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