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1099 Hassles For Rental Real Estate Owners

In an earlier post, I ranted about the burdensome new Form 1099 reporting requirements for businesses. Those rules are scheduled to kick in next year, but there’s a good chance they will be repealed before then. Fingers crossed!

Meanwhile, yet another set of nasty new 1099 rules are lurking in the background. These rules affect owners of rental real estate. They were buried in last September’s generally pro-taxpayer Small Business Jobs Act of 2010. For reasons that escape me, they have not gotten much attention, and I’ve not yet heard loud demands for repeal. Here’s the story.

Property Owners Must Issue 1099s to Service Providers

For the 2011 tax year, the IRS will consider owning one or more rental real estate properties “a business” for purposes of the 1099 requirements. That means property owners must file a 1099 with the IRS for any service provider paid $600 or more this year (for services that range from yard care to accounting). Owners must provide a copy of the 1099 (a so-called payee statement) to each payee. Until now, owning rental real estate did not count as a business for 1099 purposes, so owners were blessedly exempt from having to file 1099s and issue payee statements. Not any longer.

On a more favorable note, Congress authorized the IRS to create exceptions that will exempt property owners from the 1099 rules in two cases: if they receive only minimal amounts of rental income (what that is we won’t know until the IRS issues guidance), or if their rental income is mainly from the temporary rental of a former principal residence. That’s nice, but it’s no consolation for the rest of the rental-real-estate ownership community.

It Gets Worse

As part of the 1099 process, the property owner must obtain a taxpayer ID number (TIN) for each payee. If the owner is unsuccessful in collecting a TIN, he must withhold federal income taxes from payments to that payee, and send the withheld taxes to the government. That’s a big hassle.

Finally, the IRS can assess a penalty of up to $100 for each failure to file a 1099 with the IRS and for each failure to send a payee statement. That can get expensive in a hurry.

Readers, what do you say? Are outraged property owners out there getting organized to seek the repeal of these nasty new 1099 rules? If not, why not?


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