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Federal Income Tax

Small Landlords Not Required To File Form 1099

Photo of 384 Court Street Auburn, ME 04210There is significant confusion surrounding whether or not landlords need to file form 1099s for the amounts that they pay for services.  Owning a rental property is an activity carried on regularly and continuously for profit, and many landlords consider themselves to be in business.  However, the IRS considers most rental activities to be passive activities, rather than active businesses.  If that is the case, are landlords exempt from filing form 1099?

Congress sought to clear up the confusion in 2010 when they passed a law that explicitly defined receiving rental income as conducting the trade or business of renting out property, subject to 1099 reporting requirements.  Congress later repealed that part of the law before it took effect (Hill).  Repeal aside, the IRS continued to include questions about 1099s on page 1 of Schedule E, the form individuals use to report rental income.   One question asks if the taxpayer is required to file form 1099, and the other asks if they have done so.  The has caused many small landlords to wonder if they needed to file 1099s for any service providers that they’ve paid more than $600 during the year.  These questions on schedule E have even confused a number of CPAs and other tax professionals on the issue.

The AICPA tried to clear up the confusion among its members  with an article about 1099 requirements for rental properties and also wrote a open letter to the IRS in 2013 to express its position and request further guidance.  It is the position of the AICPA that landlords only need to file form 1099 when their rental activities rise to the level of a trade or business (Porter).  This means that most owners of rental properties who are not engaged in other real estate businesses do not need to file 1099 forms.  In the letter, the AICPA proposes changes to the language of the form and instructions that would clarify this point.

The specific criteria used to determine if a landlord is running a business or merely investing are discussed here, but it is the position of the AICPA and this author that most small landlords remain exempt from the requirement to file 1099 forms for their service providers, despite the recently-added questions on Schedule E.

 

Resources

American Institute of Certified Public Accountants. (17, January, 2013).  Letter to the IRS.  http://www.aicpa.org/interestareas/tax/resources/individual/toolsandaids/pages/rentalproperties1099-miscrequirements.aspx.  Retreived 6, January, 2013.

Hill, Claudia.  (2013, March 6). Should Landlords be Filing 1099s for Service Providers. Forbes.com.  Retrieved 6, January, 2014 from http://www.forbes.com/sites/irswatch/2013/03/06/should-landlords-be-filing-1099s-for-service-providers/

Internal Revenue Service.  (2013).  Schedule E (Form 1040) Supplemental Income and Loss – Draft.  Retrieved from http://www.irs.gov/pub/irs-dft/f1040se–dft.pdf