1099 Misc Rental Property

Under current tax laws, any time that you create income for someone, you must issue a 1099 MISC form to that person. For rental properties in the past, this included having to issue forms to property managers for the fees that they would charge to manage a rental. Many of these regulations were repealed in 2011 for the 2012 tax season; however, so much of the complicated tax paperwork has been eliminated for landlords.

The one issue that does come up a lot that landlords don't realize they need the 1099 MISC issued is for value-based repair work that occurs at their home. These are issued over the course of your trade or business. With potential fines up to $3 million, it pays to be overly cautious in this area that is rather unclear.

What Constitutes Income That Must Be Reported?

In general, if you've paid someone $600 of income payments over the course of your trade or in your business dealings, then you need to issue a 1099 MISC to that person or entity. This doesn't involve personal payments. If you give someone $1,000 as a gift, you don't need to issue a tax form. If, however, you pay someone $1,000 for services rendered because your rental property needed an upgrade, then a tax form should be issued.

What is confusing is the terminology that is used. “If you paid at least $600 in rents” makes it sound like a tenant needs to issue this tax form to their landlord because they are living in a property. This is not the case, however, because it is considered a personal transaction for the tenant. It is a business transaction for the landlord, however, because it is income. When this income is then used for property improvements, it becomes a business transaction and therefore the 1099 MISC should be filed.

There are some exemptions that are listed every year and these change with each tax year. As of the last tax law update, however, there was no exempt rental property activities included.

Why Is Knowing This So Important?

There are numerous times when a landlord will pay a service provider more than $600 over the course of a year for services rendered. A $600 repair on a water heater is treated the same as a $6,000 legal fee for the eviction of three tenants on three different properties. According to the language of the tax law, both providers would need to have a 1099 MISC issued by the landlord for mutual taxing purposes.

The same would be true for any improvements that are made by a landlord to a property. This would include plumbers, landscapers, and painters. Tenants might not get out of this issue either. If a tenant claims a home business on a rental property and they make improvements with a service provider, then the home office percentage that exceeds $600 may require a 1099 MISC to be issued as well because there is value added to the business aspect of the tenant's rental area.

If you have specific questions about your tax responsibilities, it is always best to ask a local professional. This will allow you to resolve any issues that may exist so that you can file properly and not need to worry about an audit.
Posted on Oct 28, 2014


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