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1099-MISC Requirements for Landlords

In the past couple of years Congress has been active in modifying filing requirements for informational returns, especially 1099s. All of these changes have left informational return filing requirements misconstrued, especially in the case of landlords on their individual tax returns.

The Patient Protection and Affordable Care Act (PPACAP), enacted in 2010, increased the 1099 filing requirements to include any payment of $600 or more for goods or services rendered from any single vendor. On September 27, 2010, the Small Jobs Business Act (SBJA) was passed reclassifying any individuals receiving rental income as engaging in the business of renting property, and as a result, expanded the 1099 filing requirement by the PPACAP to all landlords.

In the spring of 2011 both the extensive 1099 filing requirements sanctioned by the PPACAP and the extension of these requirements to landlords under the SBJA were repealed by the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011. This repeal has caused the misunderstanding that landlords are no longer required to file 1099s for services paid.

Although the act repealed the extensive reporting requirements in which landlords were included, the historical rules still apply, causing some landlords to still be obligated to file Form 1099. Section 6041(a) states all persons engaged in a trade or business and making payment of rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income of $600 or more in the course of such trade or business to another service provider who is not incorporated, must report the amount, and the name and address of the recipient of such payment. Because this statute has not been overturned, landlords engaging in the business of renting property are still required to issue 1099s for vendors paid $600 or more. A person engaging in a trade or business is defined as a person who is involved in the activity continuously and regularly and whose main motive in engaging in the activity is for income or profit. Thus these filing requirements will not apply to the owner of property who turns over management duties to an outside source, as he is not regularly and continuously involved in the activity.

To emphasize the matter of filing requirements, the IRS has modified Schedule E. At the top of Schedule E there are now two new questions, A and B. Question A asks, “Did you make any payments in 2011 that would require you to file Form(s) 1099?” Question B asks, “If ‘yes,’ did you or will you file all required Forms 1099?” In the case of these questions the rules stated in 6041(a) apply. For example, if a landlord pays $1,000 to a handyman for various repairs in a rental unit over the course of 2011, the landlord would have to answer “yes” to both questions since it is a payment in the course of a trade or business and the payment amount is above the $600 threshold.

It is also important to note that although the extensive filing requirements were alleviated with the repeal, the increase in penalties for not filing 1099s still pertains. Taxpayers are penalized $250 for each 1099 intentionally not filed.

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