Searching for some clarity on the new rules for rental property owners? Then follow these tips from personal finance expert for women Christine Parker, CFP® to help you better understand the expanded reporting requirements.
On September 27, 2010, President Obama signed into law the Small Business Jobs Act of 2010 which included expanded reporting requirements for rental property owners who receive rental income. The new rules cast a wide net that will affect millions of rental property owners, potentially including individuals who rent their beach vacation home for only a few weeks each year.
The new rules require a rental property owner to file a 1099-MISC form for rental property expense payments totally $600 or more, annually. Reportable expenses include all types of regular maintenance and upkeep, including landscaping, plumbing, and painting, among others. “The act subjects recipients of rental income from real estate to the same information-reporting requirements as taxpayers engaged in a trade or business,” according to Journal of Accountancy.
Beginning January 1, rental property owners must keep records, including name, address, tax identification number and amount paid. Use IRS Form W9 Request for Taxpayer Identification Number and Certification to collect the necessary information about the service provider. The actual 1099-MISC form would need to be filed by the 2012 deadlines for tax filing year 2011.
Additionally, for each failure to file a correct information return, penalties have increased up to $100 and $250 for individuals and businesses, respectively.
The IRS has yet to issue guidance on these new rules and has not provided clarity on the hardship exemption and minimum amount exemption. There is a limited exemption for military personnel and those in the intelligence community if a substantial portion of the rental income is for a principal residence on a temporary basis.
In a recent letter to Congress, AICPA requested a repeal of the Section 1099 reporting requirements for rental property owners and small businesses. AICPA said, “Businesses do not need the added cost or more regulatory requirements at a time when their efforts must be focused on profitability and sustainability.”
With less than 6 weeks to go until the New Year, property owners should consult with their tax professionals and begin planning for the new reporting requirements and follow new developments as they are announced.
Additional resources:
New Law Creates IRS Paperwork for Rental Owner, Susan Ferrechio, Washington Examiner, 18 Nov. 2010.
Rental Property Owners Required to Issue 1099s in 2011, Income Property Magazine, 12 Nov. 2010.
The information contained herein should not be viewed as Parker Financial, LLC providing investment, tax or legal advice. Before implementing any strategy, please consult your accountant, legal counsel and financial planner. Please read the full disclaimer in Terms of Use.
