The sole purpose of filing a 1099 for rental income investors is to help the Internal Revenue Service (IRS) keep track of income generated from non-employment-related activities. Form 1099-MISC, in particular, represents an attempt on behalf of the IRS to keep track of miscellaneous incomes that otherwise wouldn’t appear on a traditional W-2. However, it is worth noting that the IRS isn’t the only one responsible for tracking non-employee-related incomes: rental property investors will need to make sure they are both sending and receiving 1099s when necessary.
The following information about Form 1099-MISC is intended to provide generalized financial information for a broad audience; it is not a substitute for personalized tax, investment, legal, or other business and professional advice. Therefore, always seek out the assistance of a tax professional who is well-versed in the real estate industry before coming to any conclusions about filing Form 1099-MISC.
What Is Form 1099-MISC?
Form 1099-MISC reports the payments received from a single person or business entity over the course of the year the service was provided. The form is used specifically by taxpayers who need to report non-employee compensation. More specifically, however, Form 1099-MISC is issued to businesses from each client who paid them $600 or more over the course of the current tax year. The whole point of Form 1099-MISC is to help the IRS identify income earned by independent contractors.
[ Thinking about investing in real estate? Register to attend a FREE online real estate class and learn how to get started investing in real estate. ]
Do I Need To File A 1099 For My Rental Property?
The recipients of qualifying payments are required to report them to the IRS on Form 1099-MISC. Anyone who receives rent, royalties, prizes and awards, and substitute payments (in lieu of dividends) must report their earnings on Form 1099-MISC, with one copy going to the IRS and an additional copy going to the entity that originally made the “payment.” That way, the IRS may keep track of compensation that isn’t traditionally documented. In the real estate industry, these documents become necessary when a landlord receives more than $600 in rent annually. Landlords must submit a 1099 and provide tenants with Form W-9. Tenants in commercial leases may need to include additional information when filing taxes, depending on the tax status of the landlord. Landlords must submit form 1099-NEC must be filed with the IRS and sent out to all necessary recipients by January 31st, while form 1099-MISC must do the same by March 31st.
Meanwhile, those making payments may also need to file Form 1099-MISC. Self-managing rental property owners were once required to report the money they paid independent contractors for services on their own property as recently as 2009. At the time, the Affordable Care Act required rental owners to report 1099-MISC income paid to service providers in relation to the rental property. A year later (in 2010), the Small Business Jobs Act and the Health Care Reform Bill added some clarity to the filing process. However, the reforms didn’t last long, and by 2011 it was no longer necessary for private landlords to file Form 1099-MISC to vendors for work related to their own rental property. Private landlords, do however, need to provide property managers or property management companies with a Form W-9.
Property Management Exceptions
There are a few exceptions to the above Form 1099 and W-9 requirements to be aware of. These allow certain landlords or property managers to be exempt from the standard procedures. Here are a few circumstances where tax requirements may deviate:
-
The filing minimums do not apply when payments are processed through third-party networks, such as PayPal or other credit services.
-
Commercial tenants paying under $600 in rent annually are exempt from the W-9 requirements.
-
Tax paperwork varies completely if the rental property is owned by a corporation.
-
Tenants making payments to a property management company are typically not responsible for the 1099 form requirements.
If you have any questions about the appropriate tax paperwork to follow, always consult with an attorney or tax professional.
Qualifying As A Business
The Tax Cuts and Jobs Act created a new tax deduction for pass-through businesses, through which qualified owners can deduct 20% of their business income from their income taxes. This change will last until 2025 unless the regulations are changed. The IRS explains that taxpayers should be careful when determining whether or not their rental activity should qualify as a business. By filing all of your required Forms 1099-MISC, you’ll legitimize your rental activity as a business in the eyes of the IRS. You should understand that this was new guidance when the Tax Cuts and Jobs Act was enacted. Here, the message is: if you’re a landlord, you should be filing 1099s.
Other IRS Forms For Rental Income
There are a number of 1099 forms, not the least of which are intended to provide information to the IRS about certain types of income from non-employment-related sources. Below is a list of the many 1099 forms you may come across:
-
1099-A: Acquisition or Abandonment of Secured Property
-
1099-B: Proceeds From Broker and Barter Exchange Transactions
-
1099-C: Cancellation of Debt
-
1099-CAP: Changes in Corporate Control and Capital Structure
-
1099-DIV: Dividends and Distributions
-
1099-G: Certain Government Payments
-
1099-H: Health Coverage Tax Credit (HCTC) Advance Payments
-
1099-INT: Interest Income
-
1099-K: Payment Card and Third Party Network Transactions
-
1099-LTC: Long-Term Care and Accelerated Death Benefits
-
1099-OID: Original Issue Discount
-
1099-PATR: Taxable Distributions Received From Cooperatives
-
1099-Q: Payments From Qualified Education Programs
-
1099-R: Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
-
1099-SA: Distributions From an HSA, Archer MSA, or Medicare Advantage MSA
Summary
Tax season can represent a daunting obstacle for those who don’t know how to navigate it, and Form 1099-MISC is no exception for rental property owners. At the very least, many landlords don’t know whether or not they should file a 1099 for rental income, but the safest way to make sure you are covered this tax season is to mind due diligence and consult a tax professional. Do not fill out Form 1099-MISC on your own unless you know exactly what you are doing. Instead, ask a certified personal accountant to prepare any 1099s you may need. Doing so will ensure you don’t end up paying someone else’s taxes and keep more money in your pockets.
Ready to start taking advantage of the current opportunities in the real estate market?
Click the banner below to take a 90-minute online training class and get started learning how to invest in today’s real estate market!
