Do I need to issue a 1099-misc to a contractor for my rental property?

[nash123456]

"if you are simply asking if you claimed QBI in the past but not claim it this year, would this raise a red flag?"

Yes, that was my exact question. Thank you all for responding to all the questions on this vague issue. It just sucks that there are landlords like us where we could not sell our properties before we could move to a larger property, and have to be landlords by default. 

[Indie518]

I thought pubs were numbered? This looks like general instructuons?

[ColeenD3]

IRS Publications are numbered, but frequently you can find answers in less formal IRS sources. They have Tax Topics, TaxMaps and Interactive Assistants.

[DaveF1006]

If you pay anyone over $600, IRS states it is mandatory to issue a 1099 MISC to that person.  This IRS link explains the importance of filing this. this is a requirement embedded in IRS code and Turbo Tax wants to make sure you complied with the regulation. 

You are responsible for what you report in your return but Turbo Tax wishes to ensure that you are in compliance with IRS regulations.This is something that is overlooked by business professionals but it is something that can come back and haunt you. IRS scrutinizes self-employment returns more than any other category of personal taxation. Issuing 1099 MISC to contractors for more than $600 of work is an area of grave concern to the IRS.

Edited 02/17/2020 11:01AM

[Indie518]

"If you pay anyone"? That is a broad generalization.  The payment has to made in the course of conducting a trade or business.  

[JamesG1]

Under your rental property, see the screen Did you pay anyone $600 or more for work related to this property? 

Click the link Learn more for a list of contractors for whom you may have to issue 1099-Misc forms.  The screen also specifically lists these services: 

• Legal services,
• Property management,
• Maintenance and repairs. 

This IRS publication explains who is to be issued forms 1099-Misc.

[Indie518]

Please point me to the page in the 1099-MISC general instructions that state that a landlord must issue a 1099 to anyone paid more than $600. 

[JamesG1]

See page one here.

Specific Instructions for Form 1099-MISC

File Form 1099-MISC, Miscellaneous Income, for each person in the course of your business to whom you have paid the following during the year:

At least $10 in royalties (see the instructions for box 2) or broker payments in lieu of dividends or tax-exempt interest (see the instructions for box 8). •

At least $600 in:

• Rents (box 1);
• Prizes and awards (box 3);
• Other income payments (box 3);
• Generally, the cash paid from a notional principal contract to an individual, partnership, or estate (box 3);
• Any fishing boat proceeds (box 5);
• Medical and health care payments (box 6);
• Crop insurance proceeds (box 9);
• Payments to an attorney (box 10) (see Payments to attorneys, later);
• Section 409A deferrals (box 12); or
• Nonqualified deferred compensation (box 14).

You must also file Form 1099-MISC 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.

[Indie518]

I dont see one word there explicitly stating that a landlord must issue 1099s.  Maybe point to something in the IRC? These IRS instructions aren't primary (i.e. binding) authority. 

[AmeliesUncle]

@Indie518   See my previous answer.

[Indie518]

@AmeliesUncle right on.  I just have to look at my facts and circumstances, compare them with relevent case law, and make a decision.  

[Smash1234]

Can you consider it passive income even if you placed it in an LLC? Thank you!

[Smash1234]

Can you consider it passive income even if you placed it in an LLC? Thank you!

[DavidS127]

Yes, generally rental activities are passive activities regardless of the entity that owns the rental property.  The exception is if you qualified as a real estate professional and materially participated in the rental activity (see IRS Publication 925 at this link).

[Smash1234]

I think the biggest question that remains for me, is although it’s passive income (even with LLC), is it considered “trade or business”. On the 1099 form it states the following and one sentence says “you are engaged in a trade or business if you operate for gain or profit.” Would that include passive activity as well?

Trade or business reporting only. Report on Form 1099-MISC 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. However, nonprofit organizations are considered to be engaged in a trade or business and are subject to these reporting requirements. Other organizations subject to these reporting requirements include trusts of qualified pension or profit-sharing plans of employers, certain organizations exempt from tax under section 501(c) or (d), farmers' cooperatives that are exempt from tax under section 521, and widely held fixed investment trusts. Payments by federal, state, or local government agencies are also reportable.