New Tax Reporting Rules for Landlords

The recently enacted Small Business Jobs Act of 2010,may affect you if you are an owner-manager of rental property.  Under this legislation, you will be required to send a Form 1099-MISC annually to every vendor (individual, partnership or corporate) who provides $600.00 or more in services for your rental properties.  Think gardener, handyman, etc.  Please note that these requirements are different than and are in addition to the Form 1099 requirements that resulted from the recent healthcare legislation.

 

Starting in 2011 you need to obtain a completed IRS Form W-9 from every service provider you already use. That form will give you their correct name, federal ID# or Social Security number, and address.  And I suggest getting that information right away with any new vendors before they start work.  Do not wait and create a mad scramble to obtain the information right before the deadline.  This is the surest way to end up with incomplete forms.  

 

Beginning in 2012, annually you will be required to prepare a Form 1099-MISC and send one copy by January 31st to each vendor and by February 28, 2012 one copy to the IRS with an appropriate Form 1096 cover sheet.  Presently we do not know if California will require it’s own filings.

 

Prior to 2011 the requirement for filing only applied to businesses (i.e., rental property management companies) and not rental property owners.  If you already are making filings, then no new action is required. 

 

The IRS may assess a penalty for each 1099 with inaccurate or missing information in the amount of $100.00, although the penalty is reduced for quick corrections (before August 1 of the year sent).  That penalty applies even if the bad information is not your fault,so it is important to require all vendors to fully complete a Form W-9 so you can prove you are not responsible for the error.  If there is intentional noncompliance, like not filing a 1099 for a vendor, then the penalty is $250.00 per non-filed 1099.

Schedule E filers may want to obtain an Federal Employer Identification Number (FEIN) for reporting their rental property payments in order to avoid disclosure of their personal social security numbers to vendors.  To be clear about this, the Form 1099-MISC requires all payers to provide an identification number.  In the absence of a FEIN, the only other option will be to disclose to vendors the owner’s social security number on the Form 1099-MISC.  Note – The use of a FEIN will not change your income tax reporting in any way.

Again, because these provisions already apply to businesses, if you are already filing, legislation will not change how you file the Form 1099-MISC.  Obtaining a Form W-9 from all vendors need not wait until next year.  Both the Form W-9 and instructions are available on www.irs.gov.