Quick suggestion - have you considered forming an actual LLC for your rental property? When my sister and I owned a duplex together with a similar arrangement, our CPA recommended creating an LLC and filing as a partnership (Form 1065). This made the management fee situation much cleaner tax-wise. The LLC would pay my sister a management fee, issue her a 1099, and then we'd get K-1s for our ownership percentages of the remaining profits. Saved us a bunch of headaches and potential audit flags.

Based on what everyone's shared here, it sounds like you're on the right track with treating that 5% as a deductible management fee. I went through something similar with my rental condo and learned a few things the hard way. The key points I'd emphasize: 1) Get that arrangement in writing ASAP if you haven't already - doesn't need to be fancy, just clearly state what services your brother provides for the 5% fee. 2) Make sure you're both handling it correctly on your returns - you deduct it as a business expense, he reports it as self-employment income on Schedule C. 3) Keep detailed monthly records showing the calculation. One thing that caught me off guard was the 1099-NEC requirement mentioned by Ava - if that 5% adds up to more than $600 for the year, you technically need to issue him one. My accountant said this is often overlooked in family arrangements but it's still required. The LLC suggestion from Miguel is worth considering too, especially if you plan to buy more properties together. It does add some complexity but makes everything much cleaner from a tax and liability perspective.

Kinda late to this thread but something nobody has mentioned - if your spouse isn't actively involved in running the business and just lets you use their referral links, the IRS might see this as assignment of income which is a no-no. You can't just move income between people even if you're married. Make sure your spouse is actually doing something in the business if you're going to claim their 1099-MISC income as business income on either your Schedule C or theirs.

Great question! I'm dealing with something similar in my consulting business. Based on what I've learned from my accountant and research, you can definitely include those personal 1099-MISCs on your Schedule C if they're legitimately part of your business operations - which they clearly are since credit card referrals are a core part of your rewards business. The key is documentation. Keep records showing how all these income streams are interconnected parts of the same business activity. For your wife's 1099-MISCs, I'd be more cautious. The safest approach is probably having her file her own Schedule C for her portion, especially if she's actively participating in generating those referrals (not just passively letting you use her links). One thing to consider: even though separate Schedule Cs means you'll each pay SE tax on your respective portions, you'll both be building up Social Security credits and can each potentially contribute to your own SEP-IRAs based on your individual business income. Sometimes that actually works out better tax-wise than trying to consolidate everything under one person's return. Document everything well - the IRS likes to see clear business purpose and actual involvement when income appears under different names but gets reported as business income.

This thread has been incredibly helpful! I've been struggling with this exact issue for my tax preparation. I have three rental properties that I actively manage (tenant screening, minor repairs, property showings) and was completely confused about whether this "active" management meant I should use Schedule C. Based on the discussion here, it's clear that Schedule E is the right choice for my situation since I'm managing my own investments, not providing services to other property owners. The clarification about avoiding self-employment tax while still being able to deduct all legitimate expenses is huge - I had no idea I was potentially overpaying taxes by considering Schedule C. One follow-up question: I sometimes hire contractors for bigger repairs on my properties. Should I be issuing 1099s to contractors who do work on my Schedule E rental properties, or is that only required for Schedule C business activities? I paid my handyman about $3,200 last year and want to make sure I'm handling the reporting correctly. Also, @Emily Parker, your point about QBI deduction eligibility is something I hadn't considered at all. I'll definitely need to look into whether my rental income qualifies - that 20% deduction could be substantial on my rental profits.

This is exactly the kind of confusion I had when I first started with rental properties! The key distinction that helped me understand it was thinking about WHO you're providing services to. If you're managing your own rental properties (even very actively with repairs, tenant screening, marketing vacancies, etc.), you're managing your own investments - that's Schedule E. The income isn't subject to self-employment tax, and you can deduct all ordinary and necessary rental expenses. Schedule C would only come into play if you were providing property management services to OTHER people's properties as a business, or if you were a real estate dealer (buying/selling frequently rather than holding for rental income). One thing I learned the hard way - make sure you're tracking your expenses properly on Schedule E. You can deduct a lot more than you might think: advertising for tenants, legal fees, travel to properties, even a portion of your home office if you use it exclusively for managing your rentals. Just keep good records and receipts for everything. The material participation rules that you mentioned are more about passive activity loss limitations - they don't change whether you use Schedule C vs E. Even if you don't materially participate, rental income still goes on Schedule E (it just might be subject to different loss limitation rules).

I just went through almost the exact same scenario. One other thing to consider - if your grandfather is elderly or in poor health, it might actually be more advantageous from a tax perspective to inherit the property rather than receiving it as a gift. With an inheritance, you get a "stepped-up basis" to the fair market value at the time of death, which eliminates all the capital gains that accrued during his lifetime. Not a pleasant thing to think about, but it can make a massive difference tax-wise.

One thing that hasn't been mentioned yet is the potential impact of depreciation recapture if your grandfather has been claiming depreciation on the property (if it was used as a rental or business property at any point). Even with the primary residence exclusion, any depreciation taken would need to be "recaptured" and taxed at 25% when you sell. Also, make sure to get a professional appraisal when the gift transfer happens to establish the fair market value for gift tax purposes. The IRS can challenge valuations that seem too low, especially on high-value properties like this. Given the complexity and the dollar amounts involved, I'd strongly recommend consulting with both a tax professional and an estate planning attorney before making any decisions. The potential tax savings from getting this right could easily pay for the professional advice many times over.

I had a very similar experience with a CP2100A notice last year, and I want to echo what others have said about responding promptly and keeping detailed records. The IRS data entry errors seem to be increasing, but they're generally fixable with the right approach. One thing I haven't seen mentioned yet is that you should also check if this affects any state tax filings you might have made. Some states cross-reference federal 1099 data, so if the IRS thinks there's an error, it could potentially trigger issues at the state level too. I'd recommend pulling your state account transcripts (if available online) just to make sure there aren't any corresponding notices coming your way. Also, since you mentioned this is a 1099-NEC you issued to yourself from your sole proprietorship, you might want to double-check with a tax professional that this is the correct approach for your situation. As someone else pointed out, sole proprietors typically don't issue 1099s to themselves - this might be part of what's causing the confusion in the IRS system. The good news is that once you send your response with the correct documentation, these usually get resolved without too much hassle. Just make sure to keep copies of everything and use certified mail so you have proof of delivery.

I've been dealing with IRS notices for years as a tax preparer, and I want to add a few important points that might help you and others in similar situations. First, regarding the timing - while most people mention the 60-day response window, I always recommend responding within 30 days if possible. The IRS processes responses faster when they're received promptly, and it shows good faith effort on your part. Second, when you write your response letter, be very specific about the alleged errors. In your case, mention exactly which letter is supposedly missing from your first name and which digit of your TIN they claim is wrong, then clearly state what the correct information should be. This level of detail helps the IRS agent processing your response understand exactly what needs to be corrected in their system. Third, I'd strongly recommend including a brief statement like "I request that you update your records to reflect the correct information as submitted on the original form" rather than just sending the documentation without explicitly asking for the correction. Finally, about issuing 1099-NECs to yourself from a sole proprietorship - this is indeed unusual and likely incorrect unless you have a very specific situation involving multiple business entities. A sole proprietorship and the individual owner are the same entity for tax purposes, so you typically wouldn't issue yourself a 1099. This might actually be contributing to the IRS system flagging your forms as suspicious. I'd definitely recommend consulting with a qualified tax professional to review your business structure and filing approach.