Landlords - WSJ article on new guidelines for QBI deduction

[FIREd_2015]

Here is a link to a recent article in the Wall Street Journal regarding some new provisions/requirements to get the 20% QBI deduction for landlords.

https://www.wsj.com/articles/for-landlords-a-new-tax-break-comes-with-strings-attached-11571391001

The article says "... Landlords who want to claim it for 2019 should be planning now, because they may need to send 1099 forms early next year..."

I've had several contractors work on my rental this year where the total payment will exceed $600.

Questions:

How do I go about getting the information I need to fill out the 1099 that I am suppose to send them?

Do I just call them up/send them an email requesting their TIN or is there some IRS form that I need them to fill out?

What if they refuse to provide the info?

Any landlords out there have any experience doing this?

 

[Onward]

You give them IRS Form W-9 and insist that they return it to you completed.

 

[euro]

A couple of important tidbits: the deadline for filing the 1099misc ( and the accompanying 1096) is January 31. The forms can NOT be downloaded from the IRS website but instead, need to be ordered from the IRS (irs.gov/forms). Order NOW and you’ll get them in a week. Order later in the year, or in January, and chances are it’ll take a lot longer.

 

[Senator]

A couple of important tidbits: the deadline for filing the 1099misc ( and the accompanying 1096) is January 31. The forms can NOT be downloaded from the IRS website but instead, need to be ordered from the IRS (irs.gov/forms). Order NOW and you’ll get them in a week. Order later in the year, or in January, and chances are it’ll take a lot longer.

I issue myself the 1099s via Quicken. They automatically get filed with the IRA.

This is nothing new. When you pay an individual more than $600, there has always been the requirement to issue a 1099.

 

[FIREd_2015]

This is nothing new. When you pay an individual more than $600, there has always been the requirement to issue a 1099.

With the exception of my landscaper, the majority of my payments in the past to vendors and contractors have been via credit card which to my understanding are exempt from the 1099 rule.

This year though I have a couple of large payments so I would like to be compliant.

 

[FIREd_2015]

...The forms can NOT be downloaded from the IRS website but instead, need to be ordered from the IRS (irs.gov/forms). Order NOW and you’ll get them in a week...

Thanks for the info - didn't realize I had to do that.

 

[FIREd_2015]

You give them IRS Form W-9 and insist that they return it to you completed.

Thanks. I just had to fill one out recently. For some reason I didn't connect the dots...must be sign of old age.

 

[Senator]

With the exception of my landscaper, the majority of my payments in the past to vendors and contractors have been via credit card which to my understanding are exempt from the 1099 rule.

This year though I have a couple of large payments so I would like to be compliant.

If you pay more than $600, no matter the method, you need to give a 1099.

The exception is if you pay a company or corporation.

A single rental (or two) won't qualify for it anyway.

 

[FIREd_2015]

If you pay more than $600, no matter the method, you need to give a 1099...

Not according to the Instructions for form 1099-Misc -

"Payments made with a credit card or payment card and certain other types of payments, including third-party network transactions, must be reported on Form1099-K by the payment settlement entity under section 6050W and are not subject to reporting on Form 1099-MISC."
​

TurboTax Q&A also says credit card payments do not require 1099-Misc

https://ttlc.intuit.com/community/taxes/discussion/do-you-have-to-issue-a-1099-misc-for-a-payment-made-with-a-credit-card/00/781943

 

[kypix]

Before using them I get a W9 and certificate of insurance from independent contractors that work on my rentals. If I pay them over $600, they get a 1099Misc.

 

[Senator]

Not according to the Instructions for form 1099-Misc -

"Payments made with a credit card or payment card and certain other types of payments, including third-party network transactions, must be reported on Form1099-K by the payment settlement entity under section 6050W and are not subject to reporting on Form 1099-MISC."
​

TurboTax Q&A also says credit card payments do not require 1099-Misc

https://ttlc.intuit.com/community/taxes/discussion/do-you-have-to-issue-a-1099-misc-for-a-payment-made-with-a-credit-card/00/781943

You learn something every day...

I think that law is relatively new. In the past 5 years or so. If a contractor makes more than $20K via credit card, they get a 1099-K from the CC companies.

 

[frank]

If you pay more than $600, no matter the method, you need to give a 1099.

The exception is if you pay a company or corporation.

A single rental (or two) won't qualify for it anyway.

I have a single rental and why wouldn't I qualify for it? I paid 3600 this year for a roof on my rental. Do I need to send a 1099 to the roofer?

 

[pj.mask]

Qualify for QBI? According to TurboTax you do

 

[FIREd_2015]

I have a single rental and why wouldn't I qualify for it? I paid 3600 this year for a roof on my rental. Do I need to send a 1099 to the roofer?

According to the WSJ article -

"...the IRS released "safe harbor" guidance in late September detailing when the agency will automatically accept that rental real estate is a trade or business...It is essentially impossible for a landlord who owns a single property or two to qualify as a trade or business under IRS's safe harbor...case law provides ample justification for many rental owners...to be in a trade or business outside the IRS's safe harbor...1099 forms...are a key requirement for rental owners claiming the 199A deduction..."
​

Edited: For those that don't have access to the article because it's behind a firewall. The article was publish in the printed version of WSJ on Saturday 10/19/19.

 

[Senator]

According to the WSJ article -

"...the IRS released "safe harbor" guidance in late September detailing when the agency will automatically accept that rental real estate is a trade or business...It is essentially impossible for a landlord who owns a single property or two to qualify as a trade or business under IRS's safe harbor...case law provides ample justification for many rental owners...to be in a trade or business outside the IRS's safe harbor...1099 forms...are a key requirement for rental owners claiming the 199A deduction..."

​

If you have a single rental, and you are making a profit, you are doing it wrong.

 

[Peter]

Link to IRS document:



https://www.irs.gov/pub/irs-drop/rp-19-38.pdf


For a government document, this is very clearly written. IMO it's better to work from the actual IRS rules than summary articles elsewhere.

 

[Done]

For each vendor to be paid $600 or more by cash or check in the year, I first determine whether they are a corporation or independent contractor. I check a state site (business entity or licensing board) to determine if they are a corporation since corporations do not get a 1099-MISC. I ask independent contractors to complete a W-9 form, preferably before they are paid so they are motivated. Contractors who do any amount of business are used to this request. The W-9 documents their tax ID, legal name and mailing address needed to complete the 1099. In January I use an online service efilemyforms.com to complete and mail the 1099-MISC forms.

In addition, there may be state requirements. In California, for each contract of $600 or more, I have to submit a Report of Independent Contractors (DE 542). If the amount is over $1,500, I also ask the contractor to complete a withholding exemption certificate (Form 590).

By the way, anyone receiving a 1099 from you will also get your social security number. To avoid this you can apply for a federal tax ID known as an Employer Identification Number “EIN” even if you have no employees. I use this number for the 1099's and for rental activities, but still pay taxes as an individual/sole proprietor.

 

[Finance Dave]

I'm still confused on the 1099 part. So are you saying that if I have a plumber do repairs on one of my rentals for $601 I have to issue a 1099 to them? That seems odd. I thought I saw some wording that if the "vendor" was a "company" that you didn't have to do that. If that's true, how do they define "company"? Is it just that the vendor has a TIN?

 

[Finance Dave]

Just did some additional reading and it seems to say that if they are an S-corp or Corporation then no 1099 is needed. So that means I have to ask each of my trades whether they file as an S-corp versus filing as an LLC or partnership? They do have a flowchart on the website below...but the box for "attorney" has me a bit confused still.

https://www.accountingprose.com/2017-1099-misc/

 

[Done]

Yes, you need to determine if your contractors are incorporated or not, so you can either ask them or look it up. If unincorporated you will need to have them to complete a W-9. In that flow chart, attorney applies if you paid an attorney for rental-related services.

This article by Nolo is also helpful. https://www.nolo.com/legal-encyclopedia/do-landlords-need-to-file-form-1099-misc.html

 

[Senator]

If you write a check to a company, it cannot be cashed, it must be deposited.

That will suffice.

 

[Done]

That will suffice.

Suffice for what? Determining whether the contractor is a company?