Mon, November 15, 2010
Rental Property Owners: Get Ready To Start Issuing Forms 1099
In September, H.R.5297, the Small Business Jobs Act, was signed into law. At 266 pages, the bill covers a lot of territory, but one provision will be of particular interest to small landlords.
Starting in 2012, owners of rental property will need to issue Form 1099-MISC (sometimes called an “information return”) to any service provider to whom they paid $600 or more. This requirement already exists for business owners, but this extension will cover many additional taxpayers.
Since the Forms 1099 that will be issued in 2012 cover payments made in 2011, rental property owners must start keeping records of payments made starting January 1, 2011. “Service providers” include lawyers, accountants, plumbers, or any other individuals whose services are used for your rental property. In order to issue a Form 1099, you’ll need to have each service provider’s name, address, and taxpayer ID number.
The need for good records will become more intense starting in 2012, when under the Patient Protection and Affordable Care Act, businesses and rental property owners will need to file information returns not only for service providers, but for any payee to whom a total of $600 or more is paid during the year (except for payments to tax-exempt corporations).
There are few exceptions to the new requirement. Military personnel whose rental income comes primarily from renting their personal residences on a temporary basis will be exempt, as will individuals for whom the reporting requirement creates a hardship, and those whose rental income is “not more than a minimal amount.” The IRS hasn’t issued guidance yet on how it will define who meets either of these last two criteria.
So starting next year, if you’re a landlord you’ll need to keep good records of any payments made to service providers and get them to give you the information needed to complete Form 1099-MISC. The new requirement is intended to reduce tax fraud from under-reporting of income, but it will be a nuisance for many landlords.