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

[DavidS127]

As discussed by Community user AmeliesUncle earlier in this thread, the IRS language is not as clear as it needs to be. But, in my view, if you have a full-time rental property you run like a business, it is a trade or business for purposes of the Form 1099-MISC "$600 or more in payments" requirement. 

[trusttaxes123xyz]

irs defines what a trade or business is:

The term trade or business generally includes any activity carried on for the production of income from selling goods or performing services. It is not limited to integrated aggregates of assets, activities, and goodwill that comprise businesses for purposes of certain other provisions of the Internal Revenue Code.

https://www.irs.gov/charities-non-profits/trade-or-business-defined

Rental property owners provide housing, not goods or services. 

[iOne]

Maybe someone has requested and published an IRS private letter ruling on this subject?
https://johnrdundon.com/how-to-request-an-irs-private-letter-ruling/

That would settle it, at least if the IRS rules consistently.

The question: which rental property owners must report on form 1099-MISC payments of over $600.
In our area it seems common to do so, every contractor I've hired has heard of the law and is ready to provide a W-9.

The new form by the way is 1099-NEC with a deadline of January 31 of each year.

https://www.irs.gov/forms-pubs/about-form-1099-nec

"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. "

"Exceptions:

• 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
  

• 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.

[claudemundy]

Using https://apps.irs.gov/app/picklist/list/priorFormPublication.html;jsessionid=qEm0ZREGp-ExtdzAEhkvlcSn..., I looked up the 2012 instructions for Form 1099-MISC, and I could not find the wording you referred to.  This is also a very dated reference, hardly anything authoritative 10 years later.   Do you have any better support for this position?  You may get laughed out of Tax Court if you relied on this.      

[claudemundy]

Isn't providing housing a service?  If not, what is it?  If a tenant call up complaining of a broken water pipe, do you say, "Sorry, I am not in the business of providing a service."?

[ColeenD3]

No. Rental is a passive income. When you repair the property, you are just maintaining it, ultimately, for yourself. Examples of providing services would be a bed and breakfast, where you would get meals or a hotel, where you would get maid service.

[pbaldridge]

The article does not state you "must" file, it states you "should" file. That is a very important distinction. Essentially there are benefits to filing a 1099-misc, most importantly it helps to qualify as a business vs passive income and increase your tax breaks. 

[AmeliesUncle]

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@pbaldridge wrote:

The article does not state you "must" file, it states you "should" file. That is a very important distinction. Essentially there are benefits to filing a 1099-misc, most importantly it helps to qualify as a business vs passive income and increase your tax breaks. 

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If you are claiming it as a §162 business, it is required to file them, so it pretty much is a "must".   Otherwise, penalties would apply if the IRS catches you not doing it.