Am I required to Send 1099-NEC for something considered "BETTERMENT" ?

[Cody210]

We have a rental property. In 2022 we had to have major Foundation repair done to the property. From what I have read, this type of repair is considered a "BETTERMENT" and should be depreciated. I have 2 questions:

- Do I need to send a 1099-NEC to the Foundation Repair Company?

- After Depreciating via TTax,  what happens when we Sell the property. Can this still be consider a CAPITAL IMPROVEMENT , or is that Double Dipping (taking the depreciation for years & yet adding to the COST BASIS?)

TIA

[Anonymous_ · Accepted solution]

See https://www.irs.gov/instructions/i1099msc#idm140364727413952 with respect to issuing a 1099-NEC.

If the foundation remediation is considered to be a repair, the cost is immediately deductible.

If the remediation is considered to be an improvement, then it is added as a separate asset in TurboTax and capitalized.

[Opus 17]

Anyone may issue a 1099 even if you are not required to. Whether a landlord is required to issue a 1099 for repairs made to their property depends on the type of business that the landlord is operating. Also, before issuing a 1099, you need to send a W9 to the contractor to collect their tax number. They may indicate on the W9 form that they are a type of business that is exempt from the 1099 requirement.  

The difference between a repair and an improvement is it a repair restores the property to as was condition while an improvement adds value to the property or extends the useful life for the property. Assuming you are correct that your foundation repair is a betterment, you add it to the cost basis of the property and then depreciate it.  This isn’t double dipping because when you sell the property, you pay depreciation recapture.  

[Cody210]

Thank you for that detailed response.  So follow up - If the Contractor willingly Provides me their TIN, I don't have to send them a w9, RIGHT?  (This whole 1099-NEC makes my head spin.)

[Anonymous_]

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@Cody210 wrote:

If the Contractor willingly Provides me their TIN, I don't have to send them a w9, RIGHT? 

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Did you read the information at the link I posted? If the contractor is a corporation, you do not have to send them a W-9 or a 1099.

Exceptions. 

Some payments do not have to be reported on Form 1099-NEC, although they may be taxable to the recipient. Payments for which a Form 1099-NEC is not required include all of the following.

• Generally, payments to a corporation (including a limited liability company (LLC) that is treated as a C or S corporation).

[Cody210]

OK. Got it .. thanks

[Cody210]

Thanks again for that detail re: Repair.  We had the foundation re-leveled. It had been sinking and the slab cracked, walls cracked, water damage, etc.  This resulted in brand new PIERS installed that lifted & re-leveled the SLAB. Very expensive ($40 K  !!) .. Drywall repaired, Repainted, new carpet, etc.  So based on what you say, it appears I can write this as a 1-time repair & thus deduction on Sched E ?  However, when we SELL the property, we use this in our adjusted cost basis ?

(Sorry if these are stupid questions. We are just simple landlords that rent out a house we own. We are NOT an LLC. )

[Anonymous_]

You could very well have a combination of what could be considered "repairs" and "improvements" (i.e., some expenses may need to be capitalized while others may be deducted in full immediately).

Regardless, if you decide to deduct any cost as a "1-time repair" you cannot also add that cost to your basis.