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New IRS Requirements for Owners of Rental Property

Posted by James DeLoney on Friday, February 25th, 2011 at 10:07am.

If you own rental property, the IRS has enacted a new law that requires you to issue an IRS 1099 form to your handyman and other vendors who work to maintain your property.

Beginning in 2011, the owners of rental property must start keeping track of payments to all service providers that do at least $600 worth of work for you. Federal law now requires you to keep track of these service payments and send the maintenance providers an IRS 1099 form.

The requirement applies to all independent ­contractors including plumbers, electricians, painters, cleaning services, gardeners, landscapers, accountants, and handymen—in short, virtually all service providers to the property who don’t receive a W-2 form from you and who provide at least $600 in services for the year. It’s a cumulative amount, so even if a painting job costs you only $400, you need to track it and add any other charges from that vendor to see if the total comes to more than $600, which triggers the requirement.This is not a new requirement.  Larger rental property owners have been required to provide this information for years. But with our national debt reaching unimaginable levels, the old tax man’s net keeps getting bigger and bigger.  As result, the federal government enacted the Small Business Jobs Act of 2010 (H.R. 5297) last year, expanding this requirement for all property owners, no matter how small. Anyone renting property regardless of the level of income generated is now considered to be “conducting a trade or business,” and the 1099 reporting requirement now applies to them.Rental property owners now have a legal obligation to obtain certain information from their vendors including their name, address, and Social Security number or other tax identification.  Rental owners must keep a record of the amount they pay their vendors and issue them a 1099 form to reflect the income they paid them for the year. There are a few exceptions to the requirement, however, the IRS has yet to provide specific details as to what constitutes the following exceptions. 

•Burden: Gathering the information and issuing the forms would create a hardship for you.
•Duration: The property is only a temporary rental of your own residence.•Income: Your income from the rental doesn’t meet minimal threshold requirements.

 Later this year, the IRS will fill in the details on what constitutes a hardship and what’s considered “minimal” income, so you’ll want to verify those when they come out.  Until the IRS releases more details, it is advisable to assume the following thresholds will be very exceptional.  I advise rental property owners to err on the side of caution, and assume you be held to requirements. 

The deadline for property owners to file these 1099s has yet to be established.  But at some point this year, the IRS will set forth the important dates for filing the 1099s for the 2011 tax year. You’ll want to note those and be sure to comply, because late filing or failure to file will result in penalties up to $250.

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