Do I need 1099 for work done on my rental property?

Forum|Forum|6 years ago
June 6, 2019
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First year rental on my house that I own and manage. Do I need to do 1099 for work done by contractors over $600?

TurboTax Self Employed Online

Marketstar

Employee

No, See Small Landlords Not Required To File Form 1099

See http://www.auburnmainecpa.com/1099s-required-small-landlords/

Ed-Tax-Newbie

Is this still applicable in 2020 with the 1099-NEC? If someone had a rental property that was prepped to sell and paid someone (non-business) over $600, does a 1099-NEC need to be mailed?

Are there any IRS document links that point to the exception for 'small landlords' ?

Mike9241

On September 27, 2010 the Small Business Jobs Act (the, “Act”) was signed into law. There is a little known provision in the Act which may have escaped the notice of taxpayers who own rental property, but which will affect them starting in January, 2011.

The Act subjects recipients of rental income from real estate to the same information-reporting requirements as taxpayers engaged in a trade or business. As a result, landlords making payments of $600 or more to service providers who are not incorporated (e. g. maintenance workers, plumbers, electricians, accountants) for rental property services provided to the landlord are required to provide an information return (typically, Form 1099 – MISC, Miscellaneous Income - Now form 1099-NEC) to the service provider and the IRS. (Note that the requirement will apply to ALL recipients of payments over $600 (whether incorporated or not) starting in 2012.) The IRS has the power to assess penalties for each failure to file or late filing of a required 1099, with penalty amounts varying depending on the nature of the delinquency or failure to file.

you own rental real estate so you should start planning for compliance by tracking payments made for services and by obtaining a taxpayer identification number from service providers which will be needed for preparation of 1099 forms after the end of the tax year. 1099 reporting requirements contain exceptions for individuals temporarily renting their principal residence, to taxpayers whose rental income does not exceed an IRS-determined, minimal amount (yet to be announced) and to those “for whom the reporting requirement would create a hardship”. The IRS typically interprets such exceptions narrowly. i could not find where the IRS specified a minimal amount. it is certainly not in the 1099-nec instructions see below

Specific Instructions for Form 1099-NEC
File Form 1099-NEC, Nonemployee Compensation (NEC), for each person in the course of your business to whom you have paid the following during the year:

At least $600 in:

Services performed by someone who is not your employee (including parts and materials) (box 1);
Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish (box 1); or
Payments to an attorney (box 1). (See Payments to attorneys, later.)

You must also file Form 1099-NEC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.

Be sure to report each payment in the proper box because the IRS uses this information to determine whether the recipient has properly reported the payment.

Trade or business reporting only. Report on Form 1099-NEC only when payments are made in the course of your trade or business. Personal payments are not reportable. You are engaged in a trade or business if you operate for gain or profit.
Exceptions. Some payments do not have to be reported on Form 1099-NEC, although they may be taxable to the recipient. Payments for which a Form 1099-NEC is not required include all of the following.
Generally, payments to a corporation (including a limited liability company (LLC) that is treated as a C or S corporation). However, see Reportable payments to corporations, later.
Payments for merchandise, telegrams, telephone, freight, storage, and similar items.
Payments of rent to real estate agents or property managers. However, the real estate agent or property manager must use Form 1099-MISC to report the rent paid over to the property owner. See Regulations sections 1.6041-3(d), 1.6041-1(e)(5), Example 5, and the instructions for box 1.

rpctmc

There's another question you have to ask FIRST. Is your rental property a "Business"? Only if your rental activities "rise to the level of a business" do you need to file 1099.

Not all rental activities are businesses. Most owners of rental properties not engaged in other real estate do not rise to that level and do not need to file 1099 for contractor payments. (confirmed with a turbo tax consultant/live help). Unfortunately, Turbo Tax's automated question about 1099's is only a YES/NO question (did you pay a contractor more than $600) but should include the option "you are not engaged in a trade or business" which exempts the 1099 requirement. Instead, the consultant advised me to select "NO" because my one rental home (which I inherited when my Dad passed and quickly rented to pay his mortgage) was not a "business", nor was I engaged in any other real estate business.

I would never had been able to figure that out just by answer YES/NO to that question. I did pay more than $600 to a contractor/handyman to do work in my rental but my activities did not rise to the level of a business and I did not need to file a 1099. It took me 3 different "Turbo Tax Consultants" to figure out how to bypass it without simply "lying" and answering "NO", I didn't pay a contractor more than $600. This needs to be fixed by Turbo Tax.

"The AICPA tried to clear up the confusion among its members with an article about 1099 requirements for rental properties and also wrote an open letter to the IRS in 2013 to express its position and request further guidance. It is the position of the AICPA that landlords only need to file form 1099 when their rental activities rise to the level of a trade or business (Porter). This means that most owners of rental properties who are not engage in other real estate business do not need to file 1099 forms."

IRS.GOV

You are NOT required to file information return(s) if you are not engaged in a trade or business.

pwlankford1

I have received multiple different answers to this issue. Can anyone shed some light but with 100% accuracy.

I have 2 rental properties as passive income. I paid several different contractors to renovate.

Hal_Al

Employee

You don't get 100% accuracy in an online forum. The best you can hope for is a preponderance of opinions. And that, is still no, a landlord does not need to issue a 1099-MISC.

It became a little fuzzy under the new 2018 tax law. Landlords are, generally, still not require to issue 1099-Misc forms to service providers.

References: http://www.forbes.com/sites/irswatch/2013/03/06/should-landlords-be-filing-1099s-for-service-providers/

https://www.auburnmainecpa.com/1099s-required-small-landlords/

But, a landlord 1099-misc may be required to qualify for the QBI deduction. Reference: https://www.nolo.com/legal-encyclopedia/do-landlords-need-to-file-form-1099-misc.html Most rental properties do NOT qualify for the QBI deduction.

https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/do-i-need-to-issue-a-1099-misc-to-a-contractor-for-my-rental-property/00/595692/page/2