Impacted by New 1099 Reporting Requirements?

[April 14, 2011 update: President Obama signs the Comprehensive Taxpayer Protection and Repayment of Exchange Subsidey Overpayments Act of 2011, repealing expanded Form 1099 reporting.]

[January 12, 2011: The following post is updated from the original post Receiving Rental Income from a Residential or Commercial Property?published December 14, 2010.]

It’s been all over the news: Congress, as a revenue raiser in its health care legislation, dramatically expanded Form 1099 reporting requirements beginning in 2012, for 1099s filed in 2013.

Now, after a wave of negative comments, they’re having second thoughts and may very well change or rescind the expanded rules.

Lost in the discussion is a much smaller change to the 1099 reporting requirements, enacted as part of this year’s Small Business Jobs Act. Real property owners―businesses and individuals―who receive rental income will be required to file Form 1099-MISC for certain payments they make, beginning in 2011.

The Act also increased failure-to-file penalties for everyone required to file Form 1099.

Currently, anyone engaged in a trade or business that makes certain types of payments during the year must report those payments to the IRS and to the payees. Examples include independent contractors’ fees, dividends and distributions, and interest income.

The Small Business Jobs Act expanded the definition of those engaged in a trade or business for Form 1099 reporting purposes. Beginning in 2011, it will include owners of residential and commercial rental property.

New 1099 Reporting Requirements for Landlords
If you receive income from renting real property, next year you’ll be required to file a Form 1099-MISC information return with the IRS for certain payments you make during the year―and to provide copies to the recipients of those payments.

Under the new rules, all payments of $600 or more that you make to service providers for work related to your rental property are reportable. This includes, for example, services provided by accountants, plumbers, carpenters and handymen, painters, attorneys, gardeners and exterminators. It does not include payments made for goods. Also, for 2011, it does not include payments made to corporations.

The new requirement applies to both businesses and individuals that own rental property.

There are exceptions if you’re a member of the military or intelligence community and renting your principal residence on a temporary basis, or if your rental income doesn’t exceed a minimal amount that will be determined by the IRS. There is an additional exemption for individuals who can demonstrate, under rules yet to be developed, that the reporting requirement will constitute a hardship.

The deadline for providing Form 1099 to recipients of reportable payments made during the 2011 calendar year is January 31, 2012. You’ll also be required to file Form 1099 with the IRS by February 28, 2012―March 31 if you’re filing electronically.

Although the filing deadline is more than a year away, there are actions you should take beginning January 1 to prepare for the new requirements.

You may need to adapt your recordkeeping system to track the reportable payments you make in 2011.

You’ll also need certain information from the recipients of these payments, including names, addresses and taxpayer identification numbers. Ask each payment recipient to complete Form W-9 Request for Taxpayer Identification Number and Certification, before making the first payments.

Additional 1099 Reporting Requirements for Payments to Corporations and Payments for Property
Under current law, beginning with calendar year 2012, you’ll be subject to expanded 1099 reporting rules that include reportable payments for property and services made to all for-profit recipients, including corporations.

The new rules mean that you’ll need to request Form W-9 from all for-profit entities that receive payments for property and services in 2012, including corporations. It also means you likely print and file many more 1099s in 2013 to reflect those payments.

If you fail to file a complete, accurate and timely Form 1099 as required, you’re subject to a penalty. The penalty is applied per return.

If you’re a small business filer with average annual gross receipts of less than $5 million, the maximum penalty that can be levied against you is limited.

These penalties have increased for returns required to be filed on or after January 1, 2011, as follows: