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We have renters in two properties.  To simplify Schedule E, we have an account separate from our other income and expenses that receives the rent and from which we pay tax, repairs, insurance, etc. for those properties.

Schedule E has no place to state interest received, and the credit union puts the interest to that account and to our personal account on the same 1099.  Do we just treat all the interest of both accounts as personal non-business income on Form 1040?  Or put the part in the rentals account as a negative on line 13 of schedule E (where a positive amount is an expense).  That line is otherwise empty for us.

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  • Are you talking about the interest you get on the accounts you use for running the properties?
    – DJClayworth
    Commented Nov 30 at 17:17

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Just because you choose to put it in a separate bank account does not mean it has different tax treatment from any of your other accounts. It is still your account and interest received there is still your income. It is not rental income. You would report it just like any other interest income on your 1040, unrelated to your rental.

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I understand what you want to do. You have interest that you associate with the rental property. You want to do what is right.

If the interest was so small it didn't trigger a 1099. I would just include the interest in the income I was including on schedule E. If you get audited you can document all the numbers on the line.

If there is a separate 1099 for the interest I would want to include it in the tax form where the IRS was expecting it to appear. Since it is associated with a social security number, that is where I would put the interest.

If the interest for that account was rolled-up into a larger 1099, which is what you described, it is easiest to keep it on the same line as the other 1099 interest on your tax return. The IRS computer is expecting it to find interest income of at least $x as is reported on your 1099's, they won't know that some of that money will be included on your schedule E. That could cause them to look at your tax forms more closely.

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  • It was on the 1099-INT as part of the total of all accounts we have at that C.U. So, in your fourth paragraph, you agree with "user102008." As for looking more closely, that year's returns have already generated a lot of hassle. I accidentally typed an extra digit on schedule E making that income ten times as much. I used the correct number everywhere else but IRS took the typo as fact without bothering to check the math it came from. Then the used that wrong amount to change all the math on the rest of the return and bill me for ten times the tax actually owed.
    – WGroleau
    Commented Dec 2 at 4:50
  • But I had inadvertently put that interest also on schedule E not realizing that it was included in the 1099-INT amount. So now I have to do an amendment.
    – WGroleau
    Commented Dec 2 at 4:52

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