Landlords Face Two New Tax Reporting Laws

by Chris on December 13, 2010

Beginning in 2011, landlords will be required to issue 1099’s to any service provider who receives $600 or more for work relating to the rental property.

The 1099 forms will need to be submitted to the service provider, and will also be sent to the IRS.

This means that landlords will need to develop a system for collecting tax identification information, legal names and addresses for contractor they do business with.

The new provision is part of the Small Business Jobs Act that was passed two months ago, and signals a change over existing rules that used to apply only to landlords who rented as a business or trade. Now, anyone who receives rental income is required to disburse 1099’s. The rules will also include vacation home rentals.

It is estimated that any one landlord will need to prepare a number of these 1099’s – a dozen or so on average, at the end of each tax season or pay to have a tax preparer do the work. Industry experts fear the requirement will place a financial burden on small landlords, which is an irony given the intention of the jobs law was to help small businesses.

A second tax reporting provision is set to begin in 2012. In this case, landlords will be required to prepare 1099’s on both services and goods purchased. This requirement, tucked into the health reform law, is the more controversial and attempts have already been made to repeal it. Prior IRS regulations appears to exempt credit card purchases, which are already tracked by banks and card servicers.

The IRS is currently developing regulations to aid taxpayers in compliance with both provisions, but the agency is still in the preliminary stages of rule-making, where it is evaluating public comments to the proposed changes.

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Disclaimer: The information provided in this post in not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws

{ 6 comments… read them below or add one }

Sam Robertson December 14, 2010 at 10:11 am

When you identify 2011, do you mean that the requirement is for providing 1099’s for 2011 which will be provided at the end of 2011? Or do you mean that they should be provided at the end of 2010?

Chris December 14, 2010 at 11:33 am

I believe the rule is referring to tax year 2011, so landlords would start to record the info beginning in January, then send out 1099’s on the 2011 tax season schedule.

brian December 14, 2010 at 7:02 pm

Funny. First the government destroys the housing market with Frannie and Fredy and forcing banks to give money away to high risk buyers, then they go after people who are renting homes that they can’t sell with more taxes and burdens on the rental income and services they need to support the home!!! When will this stop? The only small business they are helping here are tax preparation companies.

scott December 17, 2010 at 6:40 am

I agree with you Brian.

Mary January 28, 2011 at 3:28 am

I am a landlord and would like to have the new 1099 reporting law clairified. Does the new law mean that all services and goods purchased in 2011 require a 1099? I understand the painter, the maintanence man, the landscaper, etc, etc. but what about others. Example: If I pay for the water. Do I get a W-9 from the City Water Company so that I can send them a 1099 in 2012? If I need electric on to clean an apartment. If I pay the electric co. more then $ 600 in a calander year do I send them a 1099? If I buy more then $600 in supplies from Home Depot do I send them a 1099? etc. etc.

Chris February 9, 2011 at 8:44 am

Hi Mary,
The IRS is still working on regulations for these two tax requirements, so it’s not clear if there will be any exceptions. Best to talk to your accountant for individual guidance. But we can tell you there are two provisions: the 2011 rule applies only to services, and the 2012 provisions will apply to both goods and services. That second provision is controversial, and Congress is making attempts to repeal it — we’ll just have to wait and see what happens– will report back on any new developments. Thanks, Chris

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