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Rental Property Owners Have New 1099 Requirement

If You Own Rental Property, this Could Apply to You in 2011

If you own rental property, there is a provision in the recent Small Business Jobs Act that will affect you starting in January 2011. The provision in the Act requires property owners who receive rental income to issue Forms 1099 to any service providers that are paid $600 or more during the year.

This provision applies to payments made starting on January 1, 2011 and will cover payments made to plumbers, painters, landscapers, accountants, and any others paid $600 or more in the course of earning rental income.

Rental property owners will have to provide an information return, typically using Form 1099-MISC, to the IRS and to the service provider. These required 1099s will be issued in early 2012, and will report all payments made during 2011.

Rental property owners need to start keeping good records of payments starting January 1, 2011, so they have the information needed to prepare correct 1099s. It is also necessary to obtain the name, address and taxpayer identification number of all service providers, using Form W-9 or something similar. You'll need this information to correctly fill out the 1099 forms.

Are there any exceptions? Yes, the law provide exceptions for those who can show that the requirement will create a hardship for them. The IRS has not yet issued regulations on this, so there is currently no guidance on what constitutes sufficient hardship or how a taxpayer would demonstrate hardship.

There's also an exception for military and members of the intelligence community if substantially all their rental income comes from renting their principal residence on a temporary basis.

But what's the risk of not filing these 1099s, you might be thinking? Well, there are penalties for failure to file a correct information return, ranging from $30 to $100 per occurrence. But the penalty for intentionally disregarding the requirement is $250 for each 1099 you fail to file.

Please contact our tax professionals if you have questions about this tax requirement, or any other tax issues. Call us at 877.517.6872.