As a rental property landlord, beginning January 1, 2011, you must obtain the name, Federal Tax Identification Number (or Social Security number), and address from all individuals and businesses that provide services to your property. Examples include gardeners, painters, property managers, and maintenance people.
The recently-enacted Small Business Jobs Act of 2010 requires landlords to report payments of $600 or more to each service-provider during the year to the IRS on Form 1099-MISC. The $600 threshold is cumulative for a year. In other words, if you pay a maintenance person $350 on January 15, 2011, and pay that same person $400 on December 1, 2011, you must file a Form 1099-MISC reporting $750 paid to that person for 2011. The new information reporting requirement applies to all payments made on or after January 1, 2011.
IRS Form W-9 is the form to be used to obtain the required information from service-providers. The service provider should use their Federal Tax Identification Number (tax ID number). However, if they don't have one, they must instead provide their Social Security number. The form must be completed and signed by the service provider. Form W-9 is available at the IRS website www.irs.gov
It is best to have the W-9 completed by the service provider at the time you engage his or her services, but never later than the time you make payment. If you wait until after you make payment, you may not be able to find the service provider or the service-provider may be resistant to completing the form. You should have the W-9 completed even if the immediate services to be provided will be for less than $600, just in case you require additional services from the same provider later in the same year (remember, the $600 threshold is cumulative).
Note that you may get resistance from service providers operating as corporations. Indeed, in 2011, you are not required to issue 1099s to corporations. However, that requirement changes in 2012 when you will be required to issue 1099s to corporations. As such, if your relationship with a corporate service provider is ongoing, it would be prudent to get the W-9 completed as soon as possible.
Note, too, the Small Business Jobs Act authorizes the IRS to issue de minimis rules. Under such rules, the IRS can provide that landlords whose gross receipts from rentals are below a certain level are exempt from 1099 requirements. The IRS has not issued any rules on this as yet, so for now, you should operate under the assumption that you will be subject to the 1099 rules. Later on, you may want to check with your tax preparer to see if the IRS has issued any de minimis rules.
Although not required, it is advisable to obtain a tax ID number for yourself, if you do not already have one. The payor section of the 1099-MISC requires either your tax ID number or your Social Security number. For privacy purposes, it is not prudent or wise to issue documents that display your Social Security number.
The IRS will impose a penalty for failure to file the 1099 MISC of the greater of $250, or 10% of the amount that was required to have been reported, for each service provider. The state of California can even disallow the deduction in its entirety, if a required Form 1099 is not filed. For payments made in 2011, you must provide the 1099-MISC to the service provider no later than January 31, 2012.
Please talk to your tax preparer if you have any questions or would like help with the preparation of these 1099-MISC forms.
Landlords Now Considered in the Business of Renting Real Estate
In prior years, income from rental properties was treated as a passive activity, not a trade or buiness. As of January 2, 2011, if you get rental income the law considers that you are engaged in the business of real estate. Here are some links that can give you more information. Please consult with your tax advisor for details about your personal situation.
There are a number of newsfeeds and investment news websites available for landlords on the web. Here are some that provide a variety of topics and current information that may be useful for you.
