1099 Reporting for Rental Real Estate
By Valerie Anderson-Jones and Glenn Reyer, CPA
Do you own and rent real estate? You may be subject to reporting requirements of the IRS. All persons engaged in a trade or business that make certain payments of $600 or more in any tax year to another person must report that information to the IRS. The rule requires landlords that are in the business of renting property to file 1099-MISC’s to report the income paid to independent contractors during the year.
To determine if you need to file these forms, you need to determine if you are in the trade or business of renting property. Generally, you are engaged in a trade or business if you operate for gain or profit. You could have cash flow from the business even though you incur a tax loss each year due to depreciation on the property. In a business you typically spend a significant amount of time performing services for and managing the business. If you own the property strictly as an investment and hire a management company to address all issues of managing the property, you are not in a trade or business. There is no clear cut guidance to determine if you are in a trade or business. The facts of each case determine the conclusion, unless you qualify as a real estate professional.
If you qualify as a real estate professional, you are subject to these reporting requirements. How do you qualify as a real estate professional? First, you must materially participate in a real estate business. The business of renting and leasing realty is a real estate business. Second, more than 50% of the personal services you perform in all businesses during the year must be performed in real estate businesses in which you materially participate. Third, your personal services during the year must amount to more than 750 hours. For these purposes, you can’t count any work you perform in your capacity as an investor. You don’t have to work full-time in real estate to qualify as a real estate professional. Even if you have another occupation, you may qualify. If you have multiple properties, you may elect to treat all rental real estate interests as a single activity and thereby be able to meet the 750 hour requirement for all properties and not for each individual property.
These 1099-MISC forms are to be distributed to the individuals by January 31st and filed with the government by February 28th. Please note that there are two questions about the 1099 filings on the Schedule E. The first asks if you have any payments which require a 1099 filing and the other asks if you filed any 1099’s.
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