Be aware of new tax filing requirements for property managers and landlords

During 2010, two new permanent information reporting requirements have been added to the duties of property owners and owners of small businesses (including self-employed individuals and independent contractors).

The recently enacted small business legislation (HR 5297) included an expansion of the 1099 reporting related to a trade or business. To date, only those real estate professionals engaged in property management-type businesses have been required to file Forms 1099. Congress has extended the Form 1099 requirement to any person who receives rental income. This requirement would apply to any landlord (including a small investor), rather than only those who are in the business of managing property.

Starting in 2011, any person who receives rental income must provide a Form 1099 for all payments of $600 or more made to service providers, such as plumbers, carpenters, yard services and repair workers. The purchase of goods is not included within the reporting requirement. The Form 1099 is provided to the IRS and to the service provider. The new requirement applies to both residential and commercial property.

Also, the Health Care Reform legislation enacted earlier this year adds a new, controversial and burdensome reporting requirement that goes into effect in 2012. The 2012 reporting requirement affects any business that makes a payment of $600 or more to any payee (except a tax-exempt organization) for property and services. This provision expands the 1099 information reporting requirement of current law.

Several amendments were offered, supported by the National Association of REALTORS®, to the small business legislation that would have repealed, or at least mitigated the impact of this new requirement. Those efforts failed. The amendments to mitigate the impact would have imposed the requirement only on those businesses with more than 25 (or 50) employees and/or payments of more than $5,000 to any particular vendor or service provider.

Bottom Line for Real Estate:

  • Current Law: Information reporting requirements apply only to businesses.
  • 2011 Rule: All persons who receive rental payments must provide Form 1099. This affects all owners (both individuals and businesses) of rental properties, both residential and commercial. Thus, “mom and pop” investors and those who invest in real estate for their personal portfolios are subject to the new reporting requirement. Only aggregate annual payments of $600 or more for services (but not goods) must be reported.
  • 2012 Rule: All businesses, including real estate businesses, self-employed individuals and independent contractors will be required to make a 1099 report of any aggregate annual payment of $600 or more to any person from whom they acquired goods and services.
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