Form 1099 Reporting Requirements to Expand

Last year Congress enacted the Small Business Jobs Act of 2010 that has expanded the number of people who may be required to file a Form 1099-MISC. This specifically will target many property owners who receive rental income. Beginning in 2011, recipients of rental income from real estate will be subject to the same information reporting requirements as taxpayers engaged in a trade or business. This means that any payments made to a service provider (plumber, carpenter, exterminator, accountant, landscaper, etc.) that total more than $600 during the year will require the landlord to file a Form 1099-MISC to the service provider and the IRS. Failure to file a required Form 1099 can lead to penalties and fees being assessed to the landlord.

While this change won’t actually require any filing until 2012 it is important that rental property owners begin keeping adequate records to ensure their compliance next tax season. It is advisable to check with your tax professional for specifics but rental property owners should have each service provider fill out a Form W-9 (Request for Taxpayer Identification Number and Certification) prior to making any payments to providers. Should the service provider not return the W-9 properly filled out the landlord may be subject to withhold 28% of the payment balance and submit that directly to the IRS. There are some provisions to provide relief for individuals that can demonstrate undue hardship under this law or with minimal rental income, but those guidelines have not yet been published by the IRS as of the time of this writing.

Reports of a repeal of this provision have surfaced and U.S. Senate Finance Committee Chairman Max Baucus (D-Mont.) advised that he would introduce legislation to this effect, but the timeline for such an introduction and its chance of success is unknown. We’d urge all rental property owners to contact their congressional representatives to vocally oppose this new requirement. Without any modification there are additional provisions (from the Health Care Reform Bill) that will expand this requirement beyond just service providers to include payments to corporations as well beginning in 2012. That would mean even purchases made at Home Depot over $600 relating to the rental property would require that landlords obtain tax ID information from them and file a 1099. Contact your representative today to hopefully build some momentum to repeal this burdensome new law.

Stephen Woodall
REALTOR, GRI @ Long Realty Company
Stephen has made real estate his full-time career and passion since 2008, primarily specializing in the Foothills & the Northwest Tucson areas of Oro Valley and Marana. He is a multi-million dollar producer, representing both sellers & buyers. Stephen has tremendous experience in new home sales, listing & selling primary residences, listing & selling vacant land, listing & selling luxury homes, investment properties, rentals, and real estate development parcels.

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