Issuing a 1099 to a independent worker

[nono4taxes]

I had an individual do some work for me on our condo which we use for a month and rent out the rest of the

year.  I paid him $5000.  I do file Schedule E on my tax return.  Do I need to issue this person a 1099-MISC?  

[DianeW777]

Yes, however the form is a 1099-NEC.  The payment for your rental property, considered as business with respect to expenses, would be an allowable deduction.  If the rental portion of the expense is at least $600, then you would be required to issue a Form 1099-NEC to the individual.  See information below:

Reporting Payments to Independent Contractors

File Form 1099-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); or
• Payments to an attorney (box 1).

If the following four conditions are met, you must generally report a payment as NEC.

• You made the payment to someone who is not your employee.
• You made the payment for services in the course of your trade or business/rental 
• You made the payment to an individual, estate, or, in some cases, a corporation.
• You made payments to the payee of at least $600 during the year.

What is a Form 1099-NEC?

To enter your Form 1099-NEC in TurboTax:

1. Sign in and open or continue your return.
2. Search for 1099-NEC and select the Jump to link.
3. Answer the questions and continue through to enter the information from your form.
   • If you have multiple 1099-NECs to enter, you can select +Add Another 1099-NEC on the 1099-NEC Summary screen.

When you’re done, we’ll ask you a few questions and help you through entering any expenses you may have so that you can reduce your taxable income.

[nono4taxes]

Is this true even though I am not considered a business as we do not actively participate in the renting of our condo.  We do not file Schedule C -- we list our rental income and expenses on Schedule E.  

[DianeW777]

Yes, it's true.  Residential rentals are reported on Schedule E.  However, the key to whether you are actively participating can be making decisions as to who will be the property manager and deciding what expenses you will pay based on necessity.  See the definition below.

Active participation determines how much, you are allowed to reduce other income if your rental activity results in a loss. 

Active participation.

You actively participated in a rental real estate activity if you (and your spouse) owned at least 10% of the rental property and you made management decisions or arranged for others to provide services (such as repairs) in a significant and bona fide sense. Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and other similar decisions.

Active participation is a requirement to be allowed to reduce other income by the loss on your rental property.  There is also an income limit that begins to reduce that amount.

Phaseout Rule: The maximum special allowance of $25,000 ($12,500 for married individuals filing separate returns and living apart at all times during the year) is reduced by 50% of the amount of your modified adjusted gross income that’s more than $100,000 ($50,000 if you’re married filing separately). If your modified adjusted gross income is $150,000 or more ($75,000 or more if you’re married filing separately), you generally can’t use the special allowance. This is because the special allowance is reduced to $0 since the modified adjusted gross income is over the $100,000 amount.

• Sign into your TurboTax return > Search (upper right) > Type rentals > Press enter > Click on the Jump to... link > Edit next to the Rental Activity  > Edit next to the Property Profile or General Info > Continue to the question about active participation
• Continue to the end of the section for TurboTax to save your changes.

[nono4taxes]

No, as you are not required to file Form 1099-MISC with the IRS for any rental property independent contract work that was done.  You will still include the amount you paid the independent contractor on your rental return Schedule E as a rental expense, but you do not need to file form 1099-MISC with the IRS.

You are not required to file a 1099-MISC form for independent contract work that was done for your rental property, as long as you are not a real estate professional. 

If you rent out a house or apartment, you may worry that you have to send 1099s to contractors you hire to work on that house or apartment. A clause in the 2009 Affordable Care Act said that when you own a rental, you send a 1099-MISC to anyone who billed you more than $600 for work on the property. That rule was repealed, but the old information is still out there in cyberspace, adding to the confusion. Unless you're a real-estate professional, you're safe, and you don't have to file the 1099 for that work.

‎June 7, 2019 3:11 PM

So reading past threads on the subject and they all state that you don't have to file the 1099.  Most of the posts are from 2019-2020 so wondering if the law has changed??  I copied the about post from Intuit Turbo Tax......seems like conflicting information

[ThomasM125]

The instructions to form 1099-NEC say they need to be filed for individuals that provide services to businesses. There seems to be no mention of landlords who manage residential properties. A business is broadly defined as a venture engaged in for profit. So it is likely if you rent out a home or room in a home, you will be considered a business for Form 1099-NEC matters and therefore required to file the form. Furthermore, most residential rental properties would qualify for the Qualified Small Business Investment credit (QBI) only if they are considered a business, so it would be in most landlords best interest to issue the form 1099-NEC when appropriate.  

[nono4taxes]

Does it matter if we do not participate in the rental or cleaning of our condo.  It is located in a vacation area and we just do short term rentals and have a property management company handle everything.  We have never qualified for QBI in previous years.

[KrisD15]

Many Property Management Companies will file the 1099-NEC for the Landlords, perhaps this is something you should look into. 

More information 

[BPGroe]

I am using TurboTax Premier, and when I follow the suggestion here (i.e. search for 1099-NEC, and use the "Jump to") it takes me to the income portion of the tax form.  I don't have any 1099's to claim as income.  I want to  issue a 1099-NEC for people that did work on my rental properties.  How do I get to that section of the return so that I can issue a 1099 before January 31?

[TomD8]

@BPGroe --

See this:

Quick Employer Forms

[VolvoGirl]

@BPGroe   If you are using the Online version you need to use Premium to prepare 1099 forms.  If you are using the Desktop installed program you need the Home&Business program or separate Business program.