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bgww2
New Member

If I paid for maintenance and repair on a rental property, do I have to fill out a 1099-Misc

 
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Carl
Level 15

If I paid for maintenance and repair on a rental property, do I have to fill out a 1099-Misc

No. Unless you are a real estate professional and your primary business is rental property management, and that business provides more than half of your income.

RENTAL POPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED

Property Improvement.

Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.

To be classified as a property improvement, two criteria must be met:

1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.

2) The improvement must add "real" value to the property. In other words, when  the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.

Cleaning & Maintenance

Those expenses incurred to maintain the rental property and it's assets in the useable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not classified as cleaning/maintenance costs. They are instead classified as startup costs, amortized as such and depreciated over time.

Repair

Those expenses incurred to return the property or it's assets to the same useable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are classified as startup costs, amortized as such and depreciated over time.

Startup Costs

Please note that if residential rental income is not your PRIMARY business, and your PRIMARY source of income, then your rental business is considered to be passive, and you flat out, no way, no how , are not allowed to deduct your startup costs. Period. The IRS says so. See https://www.irs.gov/pub/irs-drop/rr-99-23.pdf and please take note that rental property produces “passive” income, while other types of businesses produce “active” income. Your rental property is not classified as your “active” business, unless you are a real estate professional, an active participant in the management of the property, and it provides a substantial (more than half) amount of your taxable income for the year. All three requirements must be met. There are no exceptions

Start up costs are expenses incurred while preparing the property for rent, with the express purpose being to prepare it for rent, before it is available for rent. These costs do include repair, cleaning and non-recurring maintenance cost. It does NOT include property improvements. With a normal business that produces active income (rental income is passive) you would amortize these costs over 15 years. But you can’t do that with a rental property. However, you can deduct a maximum of $5000 in startup costs in the first year the rental is available for rent, PROVIDED your total startup costs do not exeed $50,000. This is reported on line 18, “Other Expenses” of SCH E, and should be labeled “start up expenses”.

Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.

However, when you do something like convert the garage into a 3rd bedroom for example, making a  2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.


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7 Replies
Carl
Level 15

If I paid for maintenance and repair on a rental property, do I have to fill out a 1099-Misc

No. Unless you are a real estate professional and your primary business is rental property management, and that business provides more than half of your income.

RENTAL POPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED

Property Improvement.

Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.

To be classified as a property improvement, two criteria must be met:

1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.

2) The improvement must add "real" value to the property. In other words, when  the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.

Cleaning & Maintenance

Those expenses incurred to maintain the rental property and it's assets in the useable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not classified as cleaning/maintenance costs. They are instead classified as startup costs, amortized as such and depreciated over time.

Repair

Those expenses incurred to return the property or it's assets to the same useable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are classified as startup costs, amortized as such and depreciated over time.

Startup Costs

Please note that if residential rental income is not your PRIMARY business, and your PRIMARY source of income, then your rental business is considered to be passive, and you flat out, no way, no how , are not allowed to deduct your startup costs. Period. The IRS says so. See https://www.irs.gov/pub/irs-drop/rr-99-23.pdf and please take note that rental property produces “passive” income, while other types of businesses produce “active” income. Your rental property is not classified as your “active” business, unless you are a real estate professional, an active participant in the management of the property, and it provides a substantial (more than half) amount of your taxable income for the year. All three requirements must be met. There are no exceptions

Start up costs are expenses incurred while preparing the property for rent, with the express purpose being to prepare it for rent, before it is available for rent. These costs do include repair, cleaning and non-recurring maintenance cost. It does NOT include property improvements. With a normal business that produces active income (rental income is passive) you would amortize these costs over 15 years. But you can’t do that with a rental property. However, you can deduct a maximum of $5000 in startup costs in the first year the rental is available for rent, PROVIDED your total startup costs do not exeed $50,000. This is reported on line 18, “Other Expenses” of SCH E, and should be labeled “start up expenses”.

Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.

However, when you do something like convert the garage into a 3rd bedroom for example, making a  2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.


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Eastpodunk
Level 2

If I paid for maintenance and repair on a rental property, do I have to fill out a 1099-Misc

This is great news, but TurboTax Premier Help states it's required for any contractor paid >$600? I have gone through the steps showing that I am an active participant, but not a real estate professional. Do I simply select "No, I did not pay for work that required a 1099", although TurboTax appears to specify that any contractor paid >$600 must be issued a 1099? Wish I could copy and paste the text from TT, or attach a screenshot, here.
Carl
Level 15

If I paid for maintenance and repair on a rental property, do I have to fill out a 1099-Misc

 Do I simply select "No, I did not pay for work that required a 1099",
Yes, that is the option you will select. Does it really have the word "contractor" in that? It should be better specified because you only do a 1099-MISC if you pay an "individual" more than $600 total in the tax year. A self-employed licensed contractor is not considered an "individual" if you paid their business, as opposed to paying the individual directly.
Eastpodunk
Level 2

If I paid for maintenance and repair on a rental property, do I have to fill out a 1099-Misc

Thanks, Carl. It states, "If you paid someone, such as an independent contractor" and "Common examples that can require a form 1099-Misc: Legal services, Property management, Maintenance and Repairs". I am specifically worried about the fees I paid my property manager who is simply and individual (not a broker, but I suppose she could be considered a business - not licensed). She does give me invoices, at my request. The "help" file is less explicit. It states, "if you pay someone commissions or fees of $600 or more during the year, you must complete a form 1099-misc". Further down it just emphasizes clarifying whether the person was really a contractor or an employee (so, W2 vs 1099).
Carl
Level 15

If I paid for maintenance and repair on a rental property, do I have to fill out a 1099-Misc

Having been a landlord for 25 years, I'm telling you for a known fact that you are not required to file a 1099-MISC. Now if you want to, then my all means knock yourself out. There's no law prohibiting you from doing so.
DanaMPlonk
New Member

If I paid for maintenance and repair on a rental property, do I have to fill out a 1099-Misc

I have a vacation rental home that I manage on my own.  In 2019 I paid a lady to go clean the home after renter stay.  She made over $10,000 on us.  Can I claim that money on my taxes for 2019 even though I did not file a 1099 on her?  Can I claim a 1099 on her for last year now?

Carl
Level 15

If I paid for maintenance and repair on a rental property, do I have to fill out a 1099-Misc

I have a vacation rental home that I manage on my own.

So that is not residential rental real estate that gets reported on SCH E. You hvae a vacation rental. Since you "DO" provide services on a recurring basis to your tenants, it's a SCH C business. (If you paid one person $10K in a year to clean, then you provided recurring services. Period.)

Since your cleaning person was not a W-2 employee and you paid them more than $600 in the tax year from your SCH C business (not SCH E) you are required by law to issue them a 1099-MISC. Weather you issue it or not does not negate the fact that you can claim the expense. But if you claim it and don't issue the 1099-MISC, you can expect to be audited and fined about 24-36 months after filing your tax return reporting the expense.

You can claim the expense on the tax return for the tax year you *ACUTALLY PAID* the expense.  But again, there's no question that this is *NOT* a SCH E rental. It *IS* a SCH C active business.

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