1099s for Rental-Related Payments

[retire@40]

Starting with tax year 2011, there is a new rule for owners of rental properties.

If you own rental property and pay out $600 or more to a service provider (such as a plumber, electrician, landscaper, etc), you are required to give them a 1099 next January (2012) showing the total amount you paid them.

The reason this is important now is because you will need to obtain their name, address, and tax ID number for any work that is done to your rental property starting January 1, 2011. You can get this information from them by using IRS Form W-9. Do it BEFORE you pay any service providers, otherwise you may have a difficult time getting the information from them later.

If you do not provide them with a 1099 and comply with all other related filing requirements, you are subject to penalties, and they could become steep.

[Onward]

I guess an owner would also have to give a 1099 to a property mgr who takes $600+?

[Nords]

Quote:

Originally Posted by retire@40 Starting with tax year 2011, there is a new rule for owners of rental properties.

Aw crap.

Got a link?

[REWahoo]

I thought that change didn't go into effect until 2012?

New 1099 Requirements for B2B Transactions - Business Taxes - Entrepreneur.com

Senate Fails to Repeal 1099 Requirements

Quote:

The new requirements would be effective for purchases made in 2012 that will be reported on 1099 forms filed in 2013

[SunsetSail]

Quote:

Originally Posted by REWahoo I thought that change didn't go into effect until 2012? New 1099 Requirements for B2B Transactions - Business Taxes - Entrepreneur.com Senate Fails to Repeal 1099 Requirements

Me too regarding 1/1/2012 effective date. I'm ultimately responsible for this reporting at my company so if I'm wrong I may be looking for a new position next year.

Everyone I talk to seems to think this will get repealed next year, but at the same time we're putting processes in place to handle it.

[Nords]

Well, this is going to be fun.

As usual I'm confused by the vocabulary. We don't pay anyone a regular fee to do anything to our rental property. However this seems to imply that the company which oils our shake roof every four years, or the company that replaces the garage door, should be issued a 1099. Yet we already have all our copies of our receipts for that work, and it's already reported on Schedule E.

And then there's this from REWahoo's link:

Quote:

If you pay for purchases with a credit or debit card, you are not required to issue a 1099. The credit card companies will do so. No overlap after all. You are only required to issue 1099s for payments made via check or cash.

Heck, the whole idea of paying in cash is to avoid having to issue a bunch of other paperwork in the first place... "Hey brah, got one W-9 for you to fill out. No worries, eh?"

[retire@40]

Quote:

Originally Posted by Onward I guess an owner would also have to give a 1099 to a property mgr who takes $600+?

Yes

[retire@40]

Quote:

Originally Posted by REWahoo I thought that change didn't go into effect until 2012? New 1099 Requirements for B2B Transactions - Business Taxes - Entrepreneur.com Senate Fails to Repeal 1099 Requirements

That's another law you are talking about. Chances are that law will be repealed before 2012.

The rental activity tax law in my original post is going to stick.

[retire@40]

Here is the law in case anyone is interested in the fine details (including the penalties listed toward the end)

It is part of the "Small Business Jobs Act of 2010"

H. R. 5297—58
Subtitle B—Revenue Provisions
PART I—REDUCING THE TAX GAP
SEC. 2101. INFORMATION REPORTING FOR RENTAL PROPERTY
EXPENSE PAYMENTS.
(a) IN GENERAL.—Section 6041 of the Internal Revenue Code
of 1986, as amended by section 9006 of the Patient Protection
and Affordable Care Act, is amended by redesignating subsections
(h) and (i) as subsections (i) and (j), respectively, and by inserting
after subsection (g) the following new subsection:
‘‘(h) TREATMENT OF RENTAL PROPERTY EXPENSE PAYMENTS.—
‘‘(1) IN GENERAL.—Solely for purposes of subsection (a)
and except as provided in paragraph (2), a person receiving
rental income from real estate shall be considered to be engaged
in a trade or business of renting property.
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not apply to—
‘‘(A) any individual, including any individual who is
an active member of the uniformed services or an employee
of the intelligence community (as defined in section
121(d)(9)(C)(iv)), if substantially all rental income is derived
from renting the principal residence (within the meaning
of section 121) of such individual on a temporary basis,
‘‘(B) any individual who receives rental income of not
more than the minimal amount, as determined under regulations
prescribed by the Secretary, and
‘‘(C) any other individual for whom the requirements
of this section would cause hardship, as determined under
regulations prescribed by the Secretary.’’.
(b) EFFECTIVE DATE.—The amendments made by subsection
(a) shall apply to payments made after December 31, 2010.
SEC. 2102. INCREASE IN INFORMATION RETURN PENALTIES.
(a) FAILURE TO FILE CORRECT INFORMATION RETURNS.—
(1) IN GENERAL.—Subsections (a)(1), (b)(1)(A), and (b)(2)(A)
of section 6721 of the Internal Revenue Code of 1986 are
each amended by striking ‘‘$50’’ and inserting ‘‘$100’’.
(2) AGGREGATE ANNUAL LIMITATION.—Subsections (a)(1),
(d)(1)(A), and (e)(3)(A) of section 6721 of such Code are each
amended by striking ‘‘$250,000’’ and inserting ‘‘$1,500,000’’.
(b) REDUCTION WHERE CORRECTION WITHIN 30 DAYS.—
(1) IN GENERAL.—Subparagraph (A) of section 6721(b)(1)
of the Internal Revenue Code of 1986 is amended by striking
‘‘$15’’ and inserting ‘‘$30’’.
(2) AGGREGATE ANNUAL LIMITATION.—Subsections (b)(1)(B)
and (d)(1)(B) of section 6721 of such Code are each amended
by striking ‘‘$75,000’’ and inserting ‘‘$250,000’’.
(c) REDUCTION WHERE CORRECTION ON OR BEFORE AUGUST
1.—
(1) IN GENERAL.—Subparagraph (A) of section 6721(b)(2)
of the Internal Revenue Code of 1986 is amended by striking
‘‘$30’’ and inserting ‘‘$60’’.
(2) AGGREGATE ANNUAL LIMITATION.—Subsections (b)(2)(B)
and (d)(1)(C) of section 6721 of such Code are each amended
by striking ‘‘$150,000’’ and inserting ‘‘$500,000’’.
(d) AGGREGATE ANNUAL LIMITATIONS FOR PERSONS WITH GROSS
RECEIPTS OF NOT MORE THAN $5,000,000.—
H. R. 5297—59
(1) IN GENERAL.—Paragraph (1) of section 6721(d) of the
Internal Revenue Code of 1986 is amended—
(A) by striking ‘‘$100,000’’ in subparagraph (A) and
inserting ‘‘$500,000’’,
(B) by striking ‘‘$25,000’’ in subparagraph (B) and
inserting ‘‘$75,000’’, and
(C) by striking ‘‘$50,000’’ in subparagraph (C) and
inserting ‘‘$200,000’’.
(2) TECHNICAL AMENDMENT.—Paragraph (1) of section
6721(d) of such Code is amended by striking ‘‘such taxable
year’’ and inserting ‘‘such calendar year’’.
(e) PENALTY IN CASE OF INTENTIONAL DISREGARD.—Paragraph
(2) of section 6721(e) of the Internal Revenue Code of 1986 is
amended by striking ‘‘$100’’ and inserting ‘‘$250’’.

[Martha]

I wonder when they will do regs that define "minimal" and "hardship."

[retire@40]

Quote:

Originally Posted by Martha I wonder when they will do regs that define "minimal" and "hardship."

I'm not sure how they will define "minimal" and "hardship", but until that is known, nobody can disqualify themselves from this rule yet.

This is yet one more level of complexity added to our lives. I believe I read an estimate that this would bring in $300 million more tax revenue because it is going to help capture income that has been lost to underreporting. I have not read anywhere what the estimated cost of compliance will be. The cost of compliance will ultimately be paid by the renters which will drive rents up across the country. When tradesmen are forced to report more of the income that would otherwise escape the tax system, they will collectively increase their rates to maintain their net incomes. These increased costs will also be passed on to renters.

[Nords]

For those tracking this issue, here's another data point:
Senate votes to rescind IRS reporting measure | Reuters

[jimnjana]

this is one of those laws that will have many unintended consequences. Hopefully it dies a quiet death.

[Martha]

Quote:

Originally Posted by Nords For those tracking this issue, here's another data point: Senate votes to rescind IRS reporting measure | Reuters

I believe that this law will not rescind the law relating to rental activities.

[SunsetSail]

Yesterday the House passed a version of a repeal of the 1099 reporting requirement. The House version, unlike the Senate version, contains a repeal of the rental property 1099 requirements. Some consultants that I use in DC indicated that they believed the rental property repeal will survive reconciliation, but it is just speculation at this point.

Here is an article:

House Passes 1099 Repeal