The IRS utilizes Form 1099 to capture income that might not be reported. While an independent contractor is required to honestly report all his earnings, the IRS relies on the Form 1099 to help verify the required income reporting information.
Current tax law defines receiving rental income as conducting the trade or business of renting out property, subject to Form 1099 reporting requirements. If you are a tenant, landlord, or property management company, you may be unclear about when to send or receive IRS Form W-9, and whether to file IRS Form 1099.
Failing to file Form 1099 can become very expensive, so it’s important to understand your obligations. If you are a lessee, lessor, or manager of property for trade or business, here are a few guidelines you’ll want to consider.
- Tenants – Tenants in commercial leases (and in residential leases where operating a trade or business from the property) paying a landlord more than $600 annually should ask for a W-9 from the landlord before paying them. If the W-9 shows that your landlord is a not taxed as a corporation, you are required to file Form 1099.
If you pay rent to a real estate agent or property management company instead of a landlord, your expense is not subject to Form 1099 filing requirements.
- Landlords – If a tenant pays you over $600 of rent, you should supply your tenant with your Form W-9. You will then receive a Form 1099 form reporting the rental income you received.
If you currently use a property manager, you will need to file a Form 1099 for their service fees, not including reimbursed expenses. You should supply a form W-9 to the property manager also. The property management company will be responsible for issuing Forms 1099 to all the contractors they have hired to maintain your property.
- Property Management Companies – A property manager must obtain a Form W-9 from the landlord and file Form 1099 to report rent paid in excess of $600 during the tax year. Property managers must do the same for all contractors not taxed as corporations that were hired and paid in excess of $600 over the course of the year.
If a corporation owns the rental property, a Form 1099 form is not required. Also, these filing requirements do not apply to credit card payments and PayPal. These payments are being reported by the card issuers and third-party payment networks. There are some other complicated nuances of Form 1099 that may create exposures or exceptions, depending on the type of contractor you pay.
Get taxpayer ID information before paying any vendor. Before you issue any payments to individuals or entities, ask them to complete and sign the IRS Form W-9. Having a properly completed and signed Form W-9 for all independent contractors and service providers will indicate when the Form 1099 is required. This also ensures that you have necessary documents required for your annual filing.
Form 1099 must be mailed to recipients and filed with the IRS by January 31. Depending on the volume of properties, this filing process can become a challenge for landlords and property managers. A tax advisor familiar with rental real estate taxes can help organize and streamline the process to ensure you don’t miss any filings.
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