Generating a 1099 for vacation rental housekeeping service

[Jeff0412]

I bought a vacation rental property in 2022 so this is the first year that I'll be preparing a tax return including income and expenses from the property.  We utilize a housekeeping service (LLC) to clean the property after every rental.  We only own this one rental property and we operate it ourselves (not through a business or LLC). Am I required to generate a 1099 for the housekeeping service?  

[PattiF]

It depends, you have to file a 1099-NEC if you made payments of at least $600 during the year then you are required to use Form 1099-NEC to report the payments. 

Please see this IRS article for more information.

[Jeff0412]

What's the best way to generate a 1099-NEC for the housekeeping service?  They sent me their W9.

[JohnB5677]

These are the guidelines for issuing a 1099-NEC.

• If the business you paid is a C corporation or S Corporation, then a 1099-NEC is not needed.
• Anyone else that you paid a combined total of $600 in one year for services must be issued a 1099-NEC.   
• Payments for products and materials should not be included in the computation of the payments.

In TurboTax Self-Employed and TurboTax Self-Employed Live

1. Sign into TurboTax.
2. Select Tax Home from the left menu (you might already be there)
3. Scroll down and select Your account.
4. Select Create W-2s and 1099s.
5. This will log you into Quick Employer Forms.
6. Follow the interview to create the Form.

[Jeff0412]

I don't see the option to Create W-2s and 1099s under Your Account.

[AmyC]

Please see How do I create W-2 and 1099 forms for my employees or contractors? This will give you the options based on desktop, MAC, or online. You may want to use the Instructions for Forms 1099-MISC and 1099-NEC, Miscellaneous Income and Nonemployee Compensation.

[Jeff0412]

I'm still not convinced that we are required to file a 1099.  The IRS guidance says:

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

1. You made the payment to someone who is not your employee; [This is true for us since we don't own a business]
2. You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations); [Not sure about this]
3. You made the payment to an individual, partnership, estate, or in some cases, a corporation; and [Not sure about this]
4. You made payments to the payee of at least $600 during the year. [This is true for us]

In my case, I'm not clear on #2 and #3. For #2, the question is whether renting your home on VRBO is considered a trade or business (#2 above).  We do this ourselves personally, not as a business. For #3, the housekeeper service that we pay is an LLC. 

Can someone provide more guidance on #2 and #3 in my case?

Can anyone provide 

[Jeff0412]

I found this article that says private landlords aren't required to file 1099 to vendors - https://www.keepertax.com/posts/do-i-need-to-file-a-1099-for-my-rental-property

[PatriciaV]

It depends on how you view your rental activity. If you expect no profit from the vacation rental, then it could be viewed as a hobby. In this case, no 1099's are required for "personal payments." However, if you intend for this rental to make a profit, then you are in the rental business per the IRS and are required to send 1099's. 

Also, this article provides a compelling argument for filing 1099's to support a QBI deduction for your income: Do Landlords Need to File Form 1099? (NOLO) (Note that this is opinion and not from an authoritative website.)

[Anonymous_ · Accepted solution]

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@Jeff0412 wrote:

I found this article that says private landlords aren't required to file 1099 to vendors - https://www.keepertax.com/posts/do-i-need-to-file-a-1099-for-my-rental-property

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1099s are for trade or business reporting. Unless your rental activity rises to the level of a trade or business, you probably do not need to file a 1099 for payments made to vendors. 

However, your rental activity can be treated as a trade or business for the purposes of the Section 199A (QBI) deduction if you qualify. The link below is the Rev. Proc. 2019-38 which provides a safe harbor for that purpose.

See https://www.irs.gov/pub/irs-drop/rp-19-38.pdf

In that event, you would almost certainly would want to issue 1099s where applicable to substantiate the QBI deduction.

[Jeff0412]

I guess I shouldn't be surprised that this is so complicated. 🤔

In our case, I don't think our rental activity qualifies as a trade or business.  Our goal is to break even - making a profit would be a bonus. We are also not going to claim the QBI deduction.

[Anonymous_]

Then you might not want to bother, unless the interest received is substantial.

[JBNorthwest]

If you have a vacation rental and you're actively involved i.e. self managing then the article you linked says you should file a 1099. If someone else manages for you then no. 

[DianeW777]

If you are involved in a trade or business then 1099-NEC must be filed for each person who performed services that received $600 or more in payments during the year.  

The rules for rental real estate under safe harbor for the qualified business income deduction (QBID) will be helpful to determine whether a real estate rental could be considered as a trade or business.

• IRS Safe Harbor for Real Estate Rentals as Trade or Business

Not Required to File Information Returns

You are not required to file information return(s) if any of the following situations apply:

• You are not engaged in a trade or business.
• You are engaged in a trade or business and
  • the payment was made to another business that is incorporated, but was not for medical or legal services or
  • the sum of all payments made to the person or unincorporated business is less than $600 in one tax year

@JBNorthwest