New 1099-MISC Reporting Requirements and Possible Relief

The Small Business Jobs Act of 2010 (aka SBJA) enacted by President Obama in September, 2010 and the 2010 Patient Protection and Affordable Care Act (health care reform aka PPACA) both contain new 1099 reporting requirements that affect landlords. These two laws expanded IRS Form 1099-MISC reporting requirements – the SBJA dealing with landlords and services / service providers and the PPACA dealing with landlords and goods.

REPORTING FOR SERVICES:  Pursuant to the SBJA, beginning in 2011, all landlords must provide 1099-MISC forms to all service providers for any payments during a tax year in excess of $600. Previously, only landlords renting property as a “trade or business” were required to make such a filing. Now, the law extends to any and all landlords, even those renting out just a bedroom or doing short term rentals. The law amends the definition for being engaged in the “trade or business” of renting property to include “a person receiving rental income from real estate”.  That’s a pretty broad definition!

This means that if you rent your property and pay an attorney to help with an eviction and pay an invoice for $1400, you must issue the attorney a 1099-MISC. Same goes for landlords who, say, pay a cleaning service $75 per month ($900) to clean their rental property.

The law provides three exceptions that have not yet been well fleshed out. First, active members of uniformed services or intelligence employees who are renting their primary residence while on assignment are excluded. Second. the law excludes individual who receive rental income of not more than the “minimal amount” as defined by IRS regulations – those regulations don’t exist yet. Third is a hardship exception for landlords, as determined by those same IRS regulations that don’t exist yet.

The law also provides for increased penalties for failure to file informational returns (1099s).

REPORTING FOR GOODS:  Pursuant to the PPACA, beginning in 2012 (not 2011), all landlords and other small business owners must provide 1099-MISC forms to all goods providers for any payments during a tax year in excess of $600.  The PPACA reporting was to begin in 2012.  The law defines goods as not only “things” (such as building supplies or cleaning supplies) but also utilities (like water and electricity).

RELIEF: On March 3, 2011, The House of Representatives passed the Small Business Paperwork Mandate Elimination Act of 2011.  This law seeks to repeal both the PPACA and the SBJA 1099 reporting requirements relating to landlords.  This bill is now headed to the Senate which also is opposed to the increased 1099 reporting requirements.

Notwithstanding the possible relief that might be coming, smart landlords will start now obtaining an IRS Form W9 from any provider of goods (for 2012) or services (for 2011) to be prepared to file any required 1099-MISC forms.  Failure to file or to make a proper report will subject landlords to penalties.

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