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taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
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Experience:  Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
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I have a rental four-plex unit that I manage myself (100%).

Resolved Question:

I have a rental four-plex unit that I manage myself (100%). However I have the lawn mowed by a licensed yard maintenance company. I pay him $120 per month for this. This is the only property I have as a rental. My wife and I have full time jobs. Do I have to issue 1099 for this service?
Submitted: 1 year ago.
Category: Tax
Expert:  Anne replied 1 year ago.

Anne :

Hi

Anne :

Thank you for your question.

Anne :

Landlords were exempted from that requirement

Anne :

see :http://www.silkroadrealtyinc.com/website/blog/default.asp?Display=2717

Anne :

 


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Anne, Master Tax Preparer
Category: Tax
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Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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Expert:  taxmanrog replied 1 year ago.

Hi! Welcome to Just Answer! The exception that the expert above cites is VERY restrictive, and comes from the removal of provisions that WERE to take effect this year to help fund Obamacare, but were struck down by Congress because they were too onerous. This exception DOES NOT APPLY to you as a landlord owner of a rental property. It only applies to specific instances where management companies are used as agents to manage properties on behalf of the owners.

 

IRC Reg §1.6041-1 is very specific - any payments made in the course of trade or business over $600 to a non-corporate entity are subject to Form 1099 reporting. Then the regs carve out some very specific examples. One involves real estate property managers, NOT simply landlords. The regs are very clear in that they say that a management company HAS to report on a 1099 fees paid for repairs, etc., when they manage and/or oversee the repairs. The Owner does not have to report again if the management company so reports. See Example 5 in the Regs.

 

Example 5 says G is a rental agent who manages certain rental property on behalf of property owner H. G finds tenants, arranges leases,collects rent, responds to tenant inquiries regarding maintenance, and hires and makes payments to repairmen. G subtracts her commission and any maintenance payments from rental payments and remits the remainder to H. With respect to payments to repairmen, G is performing management or oversight functions and is subject to the information reporting requirements of § 6041. With respect to the payment of rent to H, G is subject to the information reporting requirements of section 6041 regardless of whether she performs management or oversight functions or has a significant economic interest in the payment. See IRC Reg §1.6041–3(d) for rules relating to rental agents. See § 1.6041–1(f) to determine the amount that G should report to H as rent.

 

IRC Reg §1.6041-3(d) exempts payments of rent made to rental agents (but the agent is required to report payments of rent to the landlord in accordance with §1.6041–1(a)(1)(i)(B) and (2)). This means if you had a management company that rented your unit to a business, XYZ Insurance, for example, XYZ does not have to send you a Form 1099 for the rent they pay the management company. The management company would report that to you, the owner. You and the management company are still subject to the reporting requirements for any payments over $600 to outsiders. So the landlord DOES HAVE to report on a Form 1099 if the amount is over $600 unless the recipient is a corporation.

 

Failure to file a Form 1099 when required can be a penalty as small as $50 per omitted Form, to as much as 100% of the tax that would have been due on the recipient's tax return. And now, the IRS is requiring you to check a box indicating that you have filed all required Forms 1099. This means if you check the box when you did not file these Forms, you are committing perjury, and tax fraud, which allow them a longer statute of limitations period (fraud has no limit instead of three a normal return carries) and larger penalties.

 

I hope this answer clarifies the rules! If you have any questions, please feel free to ask!

taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 389
Experience: Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
taxmanrog and 2 other Tax Specialists are ready to help you

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