As you may or may not recall, depending on how close-knit you are within CPA circles, there was a significant new tax consequence and reporting requirement introduced for landlords within the Small Business Jobs Act and the healthcare reform bill passed in 2010.
This new reporting requirement was introduced to help the IRS better monitor landlord property expenses by requiring a 1099 to be filed for all independent landlords for payments during the year to any vendor or individual exceeding $600. Examples of 1099 recipients would include: gardeners, landscapers, contractors, property managers and repair services.
Earlier this year with support from Realtors, landlords, and landlord associations such as the NARPM all contacting their representatives to object to this over-reaching reporting requirement; both Congress and President Obama got the message and decided the filing burden was too great for smaller landlords. The requirement for rental property owners to file 1099′s was repealed in May of 2011. The senate voted 87-12 to approve the repeal and it was signed shortly thereafter by Obama.
This is good news for landlords, your 2011 taxes just got a lot easier as you do not now have to collect tax information from your vendors, nor report it on the 1099-MISC form as proposed in the Small Business Jobs Act.
There are numerous changes coming in 2011 and 2012 for property managers and landlords which affect your tax reporting. It’s important to be prepared with the documentation and records necessary to be able to comply. Rentec Direct’s property management software will provide tools in 2011 to accommodate these laws if they do not get repealed.
2011 Change for Landlords
Earlier this year Congress passed H.R.5297 which expanded reporting requirements for owners receiving rental income beginning in 2011. Specifically, Section 2101 establishes that, “a person receiving rental income from real estate shall be considered to be engaged in a trade or business of renting property.” This change will now require any person who receives rental income to file a Form 1099 for payments of $600 or more in a given year for each service provider. The new requirement does not include purchases of goods. Prior to this legislation, only real estate professionals such as those working in property management were considered to be in the “trade or business of renting property,” and thus required to file 1099 forms with the IRS for these types of payments.
Exemptions were included in the legislation for military/intelligence personnel, those whose rental income is no more than a “minimal amount”, and for those who would experience a “hardship”. The second two exceptions have yet to be properly defined by the IRS.
2012 Change for Property Managers
Earlier this year Congress passed H.R.3590 which is a health care bill that has nothing to do with property managers and business, other than the fact that they slipped in these new reporting requirements for small businesses. This bill expanded reporting requirements for all businesses beginning in 2012. Specifically, it requires the filing of Form 1099 for any business (including independent contractors and those who are self-employed) that makes a payment of $600 or more in a given year to any payee for goods and services. A separate Form 1099 will need to be filed for each payee. Payments to tax-exempt organizations are not included in this new requirement.
There have been several attempts to repeal this 1099 requirement but so far none have been successful. It’s unclear if there will be any further repeal attempts before the end of 2010. Click here for more information from Bloomberg Businessweek on recent repeal attempts.
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A lot of property managers and landlords disagree with these laws as they create an undue paperwork burden and unnecessary work on behalf of private landlords and managers. Some resources are provided below on how to assist in repealing these costly laws.
Additional Resources
National Association of REALTORS®: IRS Form 1099 Issue Brief
National Council of Nonprofits: 1099 Information Page
American Society of Association Executives: Prepare for New 1099 Requirements
U.S. Chamber of Commerce: Letter to Congress Urging Repeal of 1099 Provision
We are pleased to announce a new feature-set to Rentec Direct. Landlords/property owners can now quickly and easily track their depreciable improvements and report on them with just a click at tax time.
To use this new feature, simply select the box that says ‘this is a depreciable improvement’ when entering an expense for a property. Alternatively if you want to track depreciable expenses without affecting the property ledger, you can do that too. Just right-click on the property, choose Depreciation, and add any items you wish. Both methods will show up on the new depreciation schedule report within the Reports tab.
For more detailed help in setting up depreciable items, click ‘need help?‘ in the upper right after logging in, and find the FAQ item listed as ‘How do I enter and track depreciable improvements? ‘.
As you may or may not recall, depending on how close-knit you are within CPA circles, there was a significant new tax consequence and reporting requirement introduced for landlords within the Small Business Jobs Act and the healthcare reform bill passed in 2010.