1099. Do I need to issue a 1099 for a lawyer who created my living trust.

[jjesus]

Hi, 

My question is:  I did pay a lawyer to create my living trust that includes my home and  rental property.  Do I need to issue a 1099?  If so, can I split the cost between my home and my rental property?

[DianeW777]

It depends.  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 lawyer.  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 (including government agencies and nonprofit organizations).
• 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.

[jjesus]

Thank you Diane for your response.

Have a follow up question:  How do I split the cost between my rental properties and my home?

Thanks

[DianeW777]

There are a couple ways you could decide to split the cost.  Assuming the lawyer does not have a time charge for each property, my advice would be using the fair market value (FMV) of the combined total of both homes, then use the rental home value divided by the total value to arrive at the rental portion percentage.  Likewise you could use the cost of each property if you feel that is more reasonable.

You should make the determination in a way that you believe is the most reasonable, then keep that with your tax records. 

[DatBio]

Hi DianeW777,

I paid lawyer fee for a living trust for my own home as well as my rental property.  Can I simply expense the "portion" of rental property using your method in Schedule E?  I mean to expense the living trust costs as "Legal and other professional fees" category (line 10 of Schedule E)?

Why do I need to issue an 1099-NEC form to the lawyer? It sounds very complicated to me.

[DianeW777]

Yes, you can expense the rental portion using my method.  If the rental portion of the legal fees is $600 or more then you would required to issue the 1099-NEC.  If the total rental portion is below that amount then a form is not required to be issued.

As an individual, your personal portion would not require you to issue a 1099-NEC. The important factor is whether it is for and in the course of your trade or business (for this purpose a rental would be considered a business because in some ways they have the same rules).

If you do need to issue one for the rental portion, it is not complicated.  

@DatBio 

[DatBio]

I think I am luck out here.  I paid the lawyer in two payment, half of it in 2023 December and the rest in 2024 Feb.  With your method, the rental portion for what I paid in 2023 will be less than 600 and so I will just report it as part of "Legal & other professional" category in rental income expense.

Side question, we also paid a company to do our rental's external painting and of course more than $600.  I am reporting it as expense.  Do I need to issue 1099 NEC to the painting company?

[LeticiaF1]

As DianeW777 mentioned in a previous post, 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 (including government agencies and nonprofit organizations).
• 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.

If the painting company meets all four of those requirements, then yes you need to issue a Form 1099-NEC.  

@DatBio 

[DatBio]

Hi DianeW777,

Question about the living trust again. I have another post before reading this post as below.

https://ttlc.intuit.com/community/taxes/discussion/re-can-i-deduct-lawyer-fee-for-my-living-trust-on...

The reply is that "Living trust is a personal expense"  So, it is contracdicting for what you are saying here, that living trust expense cannot be treated as deduction.  

Would you confirm if rental portion of the living trust can be treated as deduction to rental property, DianeW777.  Or, do you have any reference?  Thanks!

[DianeW777]

The answer is the fees can be deducted as far as they affect your rental property.  See the article below, then decide if you want to use this expense on your rental activity. It is basically a protection tool for your assets, including your rental property.

• Can I deduct legal fees on my taxes?

Quick Employer Forms can be used to issue any 1099-NEC.  This is available for use without additional fees if you use TurboTax Online Self Employed, TurboTax Live Self Employed; OR TurboTax CD/Download, TurboTax Business or TurboTax Home and Business.

The following link will walk you through the process to utilize the Quick Employer Forms.

Also you can create and mail yourself using the forms below.

• Form 1096
• Form 1099-NEC

@DatBio