New Tax Filing Requirement for Rental Property Owners, 12-21-2010

Beginning January 1, 2011 taxpayers receiving income from rental real estate are considered to be in the trade or business of renting property and will be subject to the same reporting requirements as taxpayers in other trades or businesses. That is, if an owner of rental property makes a payment (or cumulative payments) of at least $600 to a service provider (such as a plumber. electrician, accountant, etc.) during the tax year, the owner must file an information return with the IRS and with the service provider. Typically, the payments will be reported on Form 1099-MISC.

Certain taxpayers are exempt from this information reporting. You will not have to report payments to service providers if you fit within one of the following categories:

  • an individual who receives rental income of no more than the “minimal amount.” This amount has not yet been defined and is to be determined under IRS regs;
  • an individual who receives substantially all rental income from renting his principal residence on a temporary basis. This category includes active members of the uniformed services and employees of the intelligence community; and
  • any other individual for whom the information reporting requirements would cause hardship.

Note that the exceptions refer to individual taxpayers. Presumably, therefore, if you own rental real estate as a corporation, partnership, trust, estate or other entity, that entity will be subject to the information reporting rules even if one of the above conditions is met. In addition, many of the terms used are not defined and will need to be clarified by IRS guidance.

Also note that these payments are cumulative in nature. For example, if you pay a landscaper $55 per month to service one of your rental properties, this would give rise to a form 1099 reporting requirement by you at year-end.

Please keep in mind that this is only an overview of the new rental real estate information reporting rules. If you would like further information, please contact Morris Hall Accounting at your earliest convenience.