Landlords, we understand that taxes might not be your favorite topic, but they’re an essential part of your role. Keeping up with the ever-changing IRS regulations is crucial. In this article, we’ll provide a brief overview of 1099 forms for landlords including using 1099 for rents, contractors, and third-party network transactions, and keep you updated on the most recent updates to the tax code.
Note: While this article provides valuable insights, it’s not a substitute for professional tax advice. Always consult a qualified tax professional for guidance tailored to your rental business.
Types of 1099 Forms
1099 forms encompass various documents for reporting different income types. Here are the three main kinds of 1099 Forms:
- Form 1099-NEC (Non-Employee Compensation): this form is filed by independent contractors, freelancers, and anyone who receives non-W-2 income that exceeds $600. Landlords must file this form for each independent contractor or freelancer whom they paid over $600 throughout the year.
- Form 1099-MISC (Miscellaneous): use a Form 1099-MISC when you need to report non-W-2 income from a variety of different sources. The IRS asks that you fill out this form when you pay someone at least $600 for rent, prize money, or payments to an attorney. Keep in mind that before 2020, you would use a 1099-MISC to report these payments to independent contractors. However, now Form 1099-NEC is used for this purpose.
- Form 1099-K (Payment Card and Third-Party Network Transactions): file this form to report payments that you receive from cards and online payment apps or other third-party payment systems. These payment processors will file a 1099-K for you if you either have a yearly payment volume that meets or exceeds $20,000 or have at least 200 transactions with that processor. If you have received over 200 payments for rent from payment cards, your payment processor (property management software platform) may issue this form for you.
Who Requires a 1099-NEC?
Completing a 1099-NEC is essential for landlords who’ve hired individuals or businesses providing services directly related to rental property operations. This includes:
- Property management services
- Repairs and maintenance
- Renovations and improvements
- Cleaning and housekeeping
- Landscaping and outdoor maintenance
- Pest control services
- Legal and accounting services related to rental property
- Any services contributing to property operation or maintenance
Landlords should file a Form 1099-NEC for each service provider or contractor paid $600 or more during the tax year. However, there’s an exemption: 1099-NECs aren’t required for payments to corporations. If you’re unsure, request a Form W-9 from the service provider or contractor. Form W-9 collects the vendor’s taxpayer identification number and certification, helping determine whether Form 1099 reporting is necessary.
Who Requires a 1099-MISC?
Form 1099-MISC is for reporting various non-employee income types that wouldn’t otherwise be reported, including:
For payments that are at least $10:
- Royalties
- Broker payments in lieu of dividends or tax-exempt interest
For payments that are at least $600:
- Rent payments
- Prizes and awards
- Other income payments
- Medical and healthcare payments
- Crop insurance proceeds
- Payments from notional principal contracts to individuals, partnerships, or estates
- Payments to attorneys for non-legal fee services
- Fishing boat proceeds
The payer must issue, complete, and send a copy of Form 1099-MISC to the payee and file the original with their tax return. For example, if you settled a lawsuit and paid your attorney more than $600 for the settlement, you’d need to file a 1099-MISC. Remember to provide your attorney with a copy (legal fees are reported on Form 1099-NEC, not 1099-MISC).
Completing 1099s for Rent Using Form 1099-MISC
Filing a 1099-MISC for rental income is necessary in certain situations, like leasing office space or renting machinery. To complete it:
- Obtain the appropriate form from the IRS, either by ordering a hard copy, printing it from the IRS website, or filing electronically.
- Fill out the form with your information (name, address, Tax Identification Number or TIN) and the payee’s information (name, address, TIN). Indicate the payment amount in the relevant box based on the nature of the payment.
- File the completed form by the due date, either by March 1 (paper filing) or March 31 (electronic filing)
Remember, Form 1099-MISC is for reporting rental payments you made, such as office space rent. Rental income received from tenants is reported using a different form, Schedule E (Form 1040, Supplemental Income and Loss).
Conclusion
While tax season may not be your favorite time of the year, landlords must navigate complex tax forms to report rental income and expenses accurately. Staying informed about relevant tax forms and seeking advice from tax professionals experienced in real estate transactions ensures you’re well-prepared each year.