…a provision of the Small Business Jobs Act passed by Congress last fall mandates that rental income be subject to the same tax reporting requirements as a business or trade. The law went into effect January 1st. I’ll leave it to the Journal of Accountancy (it’s one of your morning must-reads, right?) to explain what this means for property owners:
Thus, rental income recipients making payments of $600 or more to a service provider in the course of earning rental income are required to provide an information return (typically, Form 1099-MISC, Miscellaneous Income) to the IRS and to the service provider. This provision will apply to payments made after Dec. 31, 2010, and will cover, for example, payments made to plumbers, painters or accountants in the course of earning the rental income.
While rental property owners will not actually issue the required 1099s until early 2012, they need to start keeping adequate records of payments starting Jan. 1, 2011, so they will be prepared to issue correct 1099s. They will also need to obtain the name, address and taxpayer identification number of the service provider, using Form W-9 or a similar form.
The law does provide exceptions for those who the new requirement creates “hardship” and for those whose rental income is “not more than a minimal amount.” However, the IRS has yet to issue guidance defining who qualifies for these exceptions, even though the new law has already taken effect. Better start keeping meticulous records now — fines for failing to file 1099s range from $60 to $250,000.