A. You are correct in finding a mistake. The rents paid should have been reported on a 1099-Misc. Your best option is to contact the lessee and ask them to please void the 1099-R and reissue a 1099-Misc. That, however, is easier said than done. Barring getting a timely corrected form, these are the choices you have:
- Ignore the 1099-R and just enter the correct amount on Schedule E
- If the lessee says they will correct the form, ignore the 1099-R and wait until the corrected form arrives. You may need to put your grand-dad's return on extension pending arrival of the new form.
- Enter the 1099-R on line 16b where the computer normally puts it, and then make an adjusting entry on line 21 as a negative amount to zero it out, and then enter the correct amount as above, on Schedule E.