About IRS Form 1099 for Landlords and Investors

The IRS 1099 forms capture income that may not otherwise be recorded and reported to the IRS. These forms are generally used for independent contractors to report earnings, however, they also have applications for landlords and property managers.

As a basic rule of thumb, if you own either residential or commercial property, you will be required to submit a 1099 form if you hire an independent contractor and pay them more than $600 over the course of the year. As with anything in real estate, you should consult your professional tax advisor to determine the best course of action for your situation.

What Are The IRS Forms 1099 And Why Does The IRS Need Them?

Form 1099 is used to report income from self-employment earnings as well as interest and dividends. The party making these payments is actually the one responsible for filing the 1099 form. For example, as a landlord, if you make payments for services performed by independent contractors for the purposes of operating your business, you must file a 1099 to report the contractor’s earnings.

The IRS relies on these 1099s as a way to monitor outside miscellaneous income sources that may not be recorded on a traditional W-2 form that would report salaries and wages. Essentially then 1099s are a way for the IRS to reinforce their knowledge of reported earnings. By comparing 1099s with a contractor’s reported income, the IRS is able to determine the accuracy of reported earnings.

As a landlord, you’re required to file a 1099 form for any independent contractor that you pay more than $600 during the calendar year.

In order to file an accurate 1099, a Form W-9 (Request for Taxpayer Identification Number and Certification) is commonly used. This IRS form can be requested by a client at any time and contains all the information necessary to accurately prepare your 1099 NEC or 1099 MISC.

Do I Need To File A 1099 For My Rental Property?

Self-managing rental property owners will need to fill out a 1099 NEC form for any contractor that they pay more than $600 in a calendar year and in some scenarios may also be required to file a 1099 MISC form.

Property managers must receive a Form W-9 from the landlord and file Form 1099 to report rents paid of $600 and above during the tax year. When working with vendors that are not taxed as corporations, 1099s will also be required if they were paid $600 or more over the course of the year.

1099 Forms: Common Situations Where They’re Needed

Here are some other situations where you may be required to submit a 1099 form:

Form 1099-MISC

• Owner disbursements sent to your partners totalling more than $600.
• Payments of attorney fees, for tasks such as evictions or the collection of unpaid rent.
• Medical and health care payments made during that tax year.

Form 1099-NEC

• You paid an independent contractor such as a plumber, repair person or locksmith.
• COVID-related deep-cleaning.
• Service providers, such as dry cleaning or laundry.

Form 1099-K

• If you use an online credit card processor for rents, such as Stripe or Square.
• If you receive funds through an online payment service platform like PayPal, Zelle, or Venmo.
• If you use a freelancing platform, like Upwork, that manages your client payments.

Can I Refuse To File W-9 Or 1099?

The short answer, no. The IRS requires these forms and there’s no option to refuse or file alternatives. However, there are several exceptions to the rules as they apply to property managers and landlords.

Exceptions To Filing Forms 1099-MISC And 1099-NEC

There are a number of exceptions to having to submit forms 1099-MISC and 1099-NEC. For a full list of exceptions, visit the IRS website.

It is not required if:

• TOTAL payments within the year are less than $600.
• The payment is made to a corporation.
• You will need to confirm if LLCs are taxed as a C or S corporation (you can confirm this with the vendors that you work with).
• The purchase was for goods instead of services.
• Payments of rent to real estate agents or property managers.
• However, the real estate agent or property manager must use Form 1099-MISC to report the rent paid over to the property owner.
• Credit card payments and payments made through online platforms such as PayPal, etc. as these payments are being reported by the card issuers and third-party payment networks (see 1099-K information below).

Use Form W-2 For:

• Wages paid to employees.
• Business travel allowances paid to employees.

About The Changes To 1099 MISC And Reintroduction Of 1099 NEC.

The 1099 MISC used to be the only form required to report all payments of $600 or more to owners for rent received and for services performed related to a rental business. However, in 2020, the IRS decided to revive the 1099 NEC (non-employee compensation) form and revamped the 1099 MISC.

1099 NEC Form

Use the Form 1099 NEC (PDF) to report payments of $600 or more to gig workers, independent contractors, unincorporated service providers, and vendors (individuals or LLCs) that performed work for you related to the rental business. This can include:

• Repairmen
• Plumbers
• Carpenters
• Landscapers
• HVAC professionals
• Locksmiths
• Cleaning services
• COVID-related services such as sanitizing services

Current 1099 NEC Form Design

1099 MISC Form

Form 1099 MISC is to be filed for people or non-incorporated entities that were paid at least $600 in miscellaneous income.

You will file a Form 1099 MISC (PDF) (Miscellaneous Income) for each person in the course of your business to whom you have paid the following during the year:

1. Commercial rents or services (Box 1). For example, payments to rent or lease office space (for commercial properties only), but not payments to real estate agents or property managers.
2. Royalties or broker payments (Box 2). At least $10 in lieu of dividends or tax-exempt interest.
3. Withheld federal income tax (Box 4) regardless of the amount of the payment. Even if the total is $600 or less, you must report ALL backup withholding amounts for anyone for whom you have withheld income taxes under a backup withholding order. If the backup withholding is for a nonemployee, use Form 1099 NEC to report these payments.
4. Attorney fees for legal services, but not for the attorney’s services (Box 10). $600 or more and are not reportable by you in box 1 of Form 1099 NEC. This can be a confusing differentiation. For example, as in a settlement agreement, you would not report the fees paid to the attorney for taking on the case.

What Information Is Needed To File A 1099?

For each individual or entity that you intend to file a 1099 form for, you will need the following information.

• A Tax ID Number (TIN). For individuals, this is their Social Security Number (SSN), for businesses this is their Employer Identification Number (EIN).

• A current address. This allows you to send the recipient a copy for their tax reporting requirements.
• Amount of funds paid. You will need to know or calculate the cumulative amount of money paid to the individual or company over the tax year.

It’s always a good idea to require any vendor that you use to fill out a W-9 when you first engage them with your business. Additionally, it’s best practice to ask for an updated W-9 on an annual basis for all current contractors or vendors. This will help you ensure that you don’t end up scrambling for the information at the end of the tax year and you don’t get caught out by any changes to their business, such as a change of address.

Tip: You can file your 1099s online through the IRS File Electronic Returns Electronically (FIRE) system.

Landlord Studio Supplier Expense Report

With Landlord Studio you can easily calculate how much you paid each of your contractors over the tax year. When recording expenses, assign them to a specific contractor or vendor in the system, then at the end of the year, run our supplier expense report to get a comprehensive breakdown.

Running a report with Landlord Studio takes a matter of moments, select your expense categories, properties, date range, and property owner and hit “Run Report”. We instantly generate the report to be downloaded, printed, or shared with your business partner or accountant via email.

Final words

Tax season can be daunting there are numerous forms to fill out from a Schedule E to your 1099s. Often landlords don’t know when or for whom they need to fill out 1099s. It is advised to consult a tax professional to ensure that you file an accurate tax return not to fill out 1099 by yourself unless you really know what you’re doing. Instead, ask a certified personal accountant (CPA) to help you prepare your 1099s. This will ensure that you don’t end up overpaying taxes and that everything properly adds up.

Related:

• What Is A Rent Ledger And Why Do You Need One?
• Tracking Rental Property Expenses: What Landlords Need To Know
• Should You Use QuickBooks For Rental Properties?
• What Are A Landlords Objectives For Financial Reporting?

Disclaimer: The information in this article is intended to be general informational purposes, not advice. Every portfolio and situation is different, and rules regarding 1099s vary from state to state, as such, make sure you consult an accountant, attorney, tax professional, or financial advisor to ensure you are submitting correctly, as well as maximizing your returns/deductions.