1099 Good Buddy! New Reporting Requirements for Landlords
UPDATE: Taxes are in a constant state of flux, and this is no exception. This requirement was repealed by by the signing of HR 4 (Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 ) on April 14, 2011. You can read the text of HR 4 here.
Own a rental property or two? Rent out your vacation home?
Guess what. The paperwork you have to file with the Internal Revenue Service is going to grow quite a bit. This is thanks to a provision tucked into the Small Business Jobs Act of 2010 signed by President Obama a few months ago.
Let me explain.
Right now, only taxpayers whose real estate activities are considered – for tax purposes – to be a trade or business must issue 1099s. That excludes most of us who own rental properties. Our rental activities have always be treated as engaging in a “passive activity”– not a business. No 1099s required.
Just a side note: The reason for the passive activity treatment is that Congress doesn’t want us to be able to write off rental losses against salaries or other active business income. We can deduct a maximum of $25,000 in passive rental losses against non-passive income and the $25,000 deduction is phased out as a household’s modified adjusted gross income rises from $100,000 to $150,000. But I digress.
Any who, back to the 1099s.
The ne
w provision subjects all of us who receive income from rental real estate to the same information-reporting requirements as taxpayers engaged in a trade or business. This means that you will need to issue a Form 1099 to any unincorporated service provider that you pay $600 or more in a calendar year. You will also need to furnish a copy to the IRS. This will apply to payments made after Dec. 31, 2010, and will cover, for example, payments made to plumbers, painters or accountants.
Now, you will not actually issue the required 1099s until early 2012, but you need to start keeping adequate records of payments starting Jan. 1, 2011, so you will be prepared to issue correct 1099s. Here are a few tips to help you get started:
Make sure you get a W-9 from every individual you pay. Do it before you hand over the first check, so you can ensure that you get the information needed for the 1099. This simple form asks for basic information such as the payee’s name, address, and tax ID number. You can get a copy HERE.
Verify the W-9 information before you file the 1099s.
Use your accounting software to track payments to your 1099 payees over the course of the year.
Don’t Have an EIN? Time to Get One. The Form 1099-K will allow you to provide either a business EIN (employer identification number) or your Social Security Number. Most landlords have not bothered to get an EIN. Why should we? Our rental income has been reported on our personal tax return, so we haven’t needed that extra bit of hassle. Time to change that thinking! With ID theft rampant, it will really be in your best interests to apply for an EIN so that your Social Security Number will not be floating around on all of the 1099s you now have to issue.
Feel free to give me a shout if you have any questions about this or other tax issues.
Until next time, thanks for reading BillOnBusiness.net! Your comments and questions are welcomed below.
Hey Bill, How does this effect the “rentee”?
Hi Laura! There’s no effect on the tenant, unless that tenant happens to be a business. For instance, if the tenant is a trust, LLC or other business entity it will need to issue a 1099 to the landlord if that landlord is an individual or partnership, and the rent payment is more than $600 for the year. Beginning with payments made in 2011, a business will have to issue a 1099 to any landlord paid rent in excess of $600.
How do I file the 1099? Are their softwares available to issue and provide instructions on how to prepare and issue 1099 form? Thanks.
Hi Aifa –
You can find the instructions for filing the forms 1099 here:
http://www.irs.gov/pub/irs-pdf/i1099msc.pdf
There are numerous programs available for preparing the forms. Just google “1099 software” and you’ll find specific software.
Hope this helps.
Hey Bill,
You said: “Beginning with payments made in 2011, a business will have to issue a 1099 to any landlord paid rent in excess of $600.” Is this still true? Was it never required before? I’ve had a commercial tenant for years and never a 1099. He now is asking for a W-9 from me. Do we really have to? Thank you
Hi James –
That response was written prior to the new Forms 1099 requirements being repealed in April 2011. If still enacted, they would have required commercial tenants to report rents paid to any landlord in the course of their trade or business. As of now, a business need only issue a Form 1099 to individuals to whom they pay $600 or more in rent.
If your rents are paid directly to you, and not to your corporation or to your property manager, and those rents are $600 or more, then yes, you should receive a Form 1099 from your commercial tenant. This has been a requirement for years, but not all commercial tenants have complied until recent IRS scrutiny. It is proper for your tenant to request a form W-9 in order to make sure that the information is reported correctly on your Form 1099.
Hope this helps!
What if my tenant doesn’t send me a 1099? I have a building that was converted from a house to small office spaces. I have several tenants, but only one has sent me a 1099. Am I penalized for their neglect?
Hi Anne! Good question. First, let me ask: are you receiving the rents as an individual or a corporation? If your tenants are paying a corporation they don’t need to send a Form 1099. That being said, you are not responsible for your tenants’ non-compliance with the rules and regs. Your only responsibility is to properly report your rental income. Hope this helps!
My previous landlord is asking me to fill out a W-9 and is holding my secerity deposit till I fill one out. I dont Understand why I have to fill one out. Usually we as renters fill one out for renters credit for our income not his can he force me to do this?
Hi Candice…Have you asked your landlord the reason he is requesting the W9? It may be that your state requires that security deposits be placed into an interest bearing account (my state does this) and the interest be paid to you when your security deposit is returned. This could be the reason for the request since the landlord would need your taxpayer identification number in the event a 1099 is required to be issued. And no, the landlord cannot force you to sign the form (although there is no reason for you not to do so. As to whether your landlord can legally withhold your security deposit for not signing the form, you would need to check with a good real estate attorney. Since I don’t know your state of residence I’m not sure what rules and regs would apply.
Hope this helps 🙂
Hi Bill
In what cases a landlord can issue a 1099 to a noncommercial non business tenant. in California
Hi Nasr,
I’m not sure I understand what you’re asking. Why would you, as a landlord, need to issue a 1099 to your tenant? 1099s, when needed, are issued to people who YOU pay – this would not, usually include your tenants.
Am I missing something? 🙂
Do I need to provide my landlord with my social security number for his 1099??
Val, why would your landlord be issuing YOU a 1099? That being said, your landlord likely already has your social security number if you completed a rental application before signing your lease.
My S-Corporation pays rent to my landlord who is registered as an LLC. I have been filing 1099’s to the IRS with the SS number that the landlord supplied to me in writing on a W-9. I received notification from the IRS that his SS does not match the name of the company. The landlord is not cooperating with providing the correct information. Now the IRS is asking me to withhold money from the monthly rent. The landlord is threatening eviction if I do so. How should I proceed?
So, here’s the deal. You are REQUIRED to comply with the IRS request for backup withholding. This request was most likely made since your landlord provided you with an incorrect TIN. If you do NOT comply you could be subject to penalties for filing a 1099 with an incorrect TIN and also be liable for uncollected amounts. In addition to the backup withholding your are also required to make an annual request for a W-9 to be completed. I suggest you do the following: 1) Send your landlord a request for a W-9; send it Certified, signature required so that you have proof that you requested the information. 2) Send a certified letter stating that the IRS has required you to withhold certain amounts from the rents and that you intend to do so until told that by the service that it is no longer required. Finally, you may want to run it by your attorney, but I doubt seriously that any court will allow your landlord to evict you in these circumstances. Your defense would be to show the documentation from the IRS requiring the withholding and the amounts paid to the landlord as rent.
Hope this helps! Let me know if you have additional questions.
Hi Bill,
Recently, I have a tenant renting my condo for 4 months or more. She is now asking me for a FEIN. I’m not sure how to respond correctly to my tenant as I do not want to seem dim witted. I am new to this and would like to respond correctly to tenant ASAP. Should I create a GE license first with business name under my actual name? Or am I allowed to create a FEIN # on my own without a GE license? Please help me with steps to making sure I do this right first time.
Hi Zane,
I’m not sure why your TENANT is under the impression she needs your EIN. Unless you are renting her a commercial property she is under no reporting requirements as far as the Internal Revenue Service is concerned. Have you asked why she needs this information?
Hello Bill,
Thank you for responding back ASAP. She is asking for a federal ID number because she is a contracted Occupational Therapist. Her contractors are paying for her housing bill as she needs proof that she is legitimately renting. I’ve googled some stuffs up but still a bit confused to see if I need to give her one.
A friend told me otherwise, go on IRS and setup for BB-1 form…then go to state tax office and file, then retrieve federal ID number?
Then another friend told me to be frank and just be honest that I don’t have one before going through trouble.
Are there consequences for tenant or landlord if she decides to file for a 1099 form? I’m assuming that’s why she needs number in first place…to fill out 1099.
Please help. Thank you
Hi, I am new at this whole landlord thing and have a question regarding my taxes. I recently bought a house and am renting out my previous residence. I did not bother getting a EIN number because my tenants are planning on buying the property. I file my taxes myself and came across the form 1099 Misc income where I have to claim my rent as income. However my confusion is when I have to list the payee and the ID number. I’m not sure if that would be me and I don’t have an ID number and really don’t plan on getting one. Can I submit my taxes without that information or is there something I need to change? Any info would be greatly appreciated! Thank you.
Shannon, if the property is held in your name and not a business entity you don’t need to get a separate EIN. You do NOT have to issue a 1099. Simply report your rent income and expenses on Schedule E. Hope this helps 🙂
Why does my landlord need my ssn to complete his taxes? He keeps hounding me for it but I’m not comfortable giving it.
Hi Connie – I don’t know of any reason that your landlord would need your SSN# to complete his taxes. It certainly isn’t in order to issue YOU a 1099 as he’s receiving, not paying, rent. He certainly may want your number for background checks etc. (which is his right), but he should have done that BEFORE renting the property to you. You may want to simply ask why he needs it. Or tell him that you opt not to give him that info 😉