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.
