WRITTEN BY ALAN LADUKE, CPA, MST
The recently enacted Small Business Jobs Act contains provisions requiring rental property owners to issue Forms 1099 to service providers for payments of $600 or more during the 2011 calendar tax year. The act subjects recipients (including individuals) of rental income from real estate to the same information-reporting requirements as taxpayers engaged in a trade or business. Thus, rental income recipients making payments of $600 or more to a service provider in the course of earning rental income must provide an informational return to the IRS and the service provider. The required return form will be Form 1099-MISC for Miscellaneous Income. This form should be provided to the service provider by January 31st and the IRS by February 28th. Thus, for payments beginning January 1 of 2011, Form 1099-MISC is required for payments to accountants, repairmen, painters, plumbers, landscapers and others who perform services in the course of earning rental income.
Rental property owners should ensure they have adequate records to be able to issue the 1099s next January 2012. The name, address and taxpayer identification number will be needed for these types of service providers. IRS Form W-9 can be used to obtain this information from the provider.
There are exceptions to the rule for 1) individuals who receive rental income of “not more than a minimal amount or 2) for individuals who can show that the requirement will create a “hardship” for them. The Act directs the IRS to issue regulations on what qualifies as a “hardship” or what level of rental income will be considered “minimal”. To date there is no guidance available and none may be forthcoming when the informational returns are due next January. Therefore, every effort should be taken now to gather the information needed. Members of the military or employees of the intelligence community are also exempt if substantially all their rental income comes from renting their principal residence on a temporary basis.
To add further pain, the Act increases the penalties for failure to file a correct informational return, basically doubling the lower level penalties and substantially increasing the maximum allowable penalties. You should contact your tax preparer/consultant for further details.
Alan LaDuke, CPA, MST. Alan is a partner in the firm Berger, Ghersi and LaDuke, PLC, CPA’s, servicing clients throughout the Metro Detroit area. ■