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

[Indie518]

What if the rental property is owned by a single member LLC?  

[AmeliesUncle]

It does not matter if it is a Single Member LLC.  That does not change anything.

In answer to the original question:

(1)  If the rental activity rises to the level of a "Trade or Business", yes, a 1099-MISC is required if you pay an unincorporated business $600 or more for services.

(2)  If the rental activity does NOT rise to the level of a "Trade or Business", NO, an 1099-MISC is NOT required.  But you can choose to file it if you want.

Unfortunately, the phrase "Trade or Business" is not clearly defined.  In some cases, courts have ruled that even a single rental property could rise to that level.  In other cases, several rentals are not considered a Trade or Business.  It depends on the exact facts-and-circumstances of your situation, and you may need to some extensive research to see where your rental activity falls.

Some recent Regulations on the Qualified Business Income (QBI) deduction may show a little insight to how the IRS views whether a rental activity rises to the level of a "Trade or Business".  In part, that Regulation says that if at least 250 hours of work are put into the rentals (including anybody you hire to do work, such a contractors), then for purposes of the QBI deduction, it is considered a "Safe Harbor" as a "Trade or Business".

Just keep in mind that the 250 hour is ONLY a "Safe Harbor" and is ONLY for purposes of the QBI deduction (NOT for the requirement of sending 1099-MISCs).  But that MIGHT give you a GENERAL idea for what the IRS would be looking at for determining if it is a "Trade or Business" or not.

If you think your situation is a "gray area", you might choose to be on the 'safe side' and file one.

P.S:  That Nolo article has numerous errors, as do many other Nolo articles.

[Indie518]

What if TP is claiming active participation as a realestate professional?

[LindaB1993]

A form 1099-Misc is still issued if the payment exceeds $600.

[Indie518]

On the other hand if TP is a passive investor then the 1099 need not be issied?

[JamesG1]

Are you asking whether a passive investor needs prepare forms 1099-Misc?

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

[nash123456]

So does this IRS article change the answer to the question? The most recent answer I saw is that if this is passive income then you don't have to issue a 1099-MISC, but if this is regarded as business, then the 1099-MISC has to be issued? I guess issuing the 1099-MISC shows that this is a business and you can get some benefits since this is considered a business? Also, a few screens later, TT asks if this is a QBI (Qualified Business Income). If  you answer yes to this question, does this automatically mean you HAVE TO issue a 1099-MISC?

Also see this: https://www.youtube.com/watch?time_continue=100&v=oIepVcPVd7g&feature=emb_logo

[ColeenD3]

AmeliesUncle provided the best answer. It covers all the bases.

Bottom line is, do you consider this a business? Do you intend to take the QBI deduction because you consider your rental a business? Or, do you consider it to be a passive activity?

If it is a business, file 1099s. If it isn't, then don't file 1099s.

[Indie518]

Please point me to the page in the general instructions for 1099-MISC that explicitly states whether or not passive realestate investors should issue 1099.  

[DianeC958]

Link to Am I Required to File a Form 1099 or Information Return

[dangermouse]

Here's a bit of information that I found.

In the IRS 1099msc info document

https://www.irs.gov/pub/irs-pdf/i1099msc.pdf

It specifically calls out property managers as an exception (as in does not require a 1099-MISC sent to them)

"Payments for which a Form 1099-MISC is not
required include all of the following."

"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"

As noted in other articles, there is the idea that this aspect of a property manager could be used a strategy for the owner to avoid this 1099 question (by having the property manager pay all the contractors).

However, it also seems like this IRS note on the 1099-MISC info document conflicts with turbotax guidance that specifies property management in the list of contractors for whom you may have to issue 1099-Misc forms.

[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.

[nash123456]

Here is another question: We have not had any work done in the rental property last year or this year but if I had anything done, and not considered this a business, based on what we are reading we would not have to issue a 1099-MISC. But what if we picked this to be a QBI last year because the laws changed and we thought it could be more advantageous for the future (people were talking about a 20% reduction in taxes in some cases, which wasn't the case for us in 2018). This year I am planning to mark it "Not QBI" in case there are issues down the line in the future.  Would that be a problem in the future because we picked QBI the first year the tax law was in effect?

[nash123456]

" Did you pay anyone $600 or more for work related to this property?. "

I have to say this is a very generic question for something that is very detailed and not clear. I get that there is a "More Info" section for that question but I am not sure if all the questions posed here are answered in that window. 

[DaveF1006]

if you are simply asking if you claimed QBI in the past but not claim it this year, would this raise a red flag? i don't see this as an issue with the IRS. This is just my humble opinion as a tax professional. In all fairness, though, audits occur randomly and we can never accurately depict what will show up as a red flag.