Do any other landlords here on Patrick.net know more about this?
I have been reading about legislation that was signed by the President in September that is going to require landlords (and I would assume management companies for those of us that use a management company) to report and submit a 1099 to the IRS for every company that the landlord pays $600.00 or more to in return for goods and/or services.
I have a call into the management company that I use to find out if they know the ins and outs of this legislation. This will be a burden on those landlords that are do-it-yourselfers, and I'm sure that for those of us that use management companies to avoid dealing with tenants and vendors (gardeners, plumbers, painters, tree trimmers, etc.) directly there is going to be a fee increase of some sort since this seems like it's going to be a paperwork burden and therefore they aren't going to do this for free. My guess is that these costs will ultimately be passed through to the tenants. I'm sure the IRS is trying to match up what the gardener and painter claim they made against what the landlord says they paid them and visa versa.
In the Forbes Magazine article they use the word ALL taxpayers. "The new landlord provision requires all taxpayers owning rental properties to issue a Form 1099 to any unincorporated service providers (e.g. plumbers, painters, accountants) they pay $600 or more to in a year, beginning with payments made in 2011. Those 1099s (typically, a 1099-Misc) would, of course, have to be sent to the Internal Revenue Service as well."
Here is the legislation:
``(h) TREATMENT OF RENTAL PROPERTY EXPENSE PAYMENTS.—
``(1) IN GENERAL.—Solely for purposes of subsection (a) and except as provided in paragraph (2), a person receiving rental income from real estate shall be considered to be engaged in a trade or business of renting property.
``(2) EXCEPTIONS.—Paragraph (1) shall not apply to—``(A) any individual, including any individual who is an active member of the uniformed services or an employee of the intelligence community (as defined in section 121(d)(9)(C)(iv)), if substantially all rental income is derived from renting the principal residence (within the meaning of section 121) of such individual on a temporary basis, ``(B) any individual who receives rental income of not more than the minimal amount, as determined under regulations prescribed by the Secretary, and ``(C) any other individual for whom the requirements of this section would cause hardship, as determined under regulations prescribed by the Secretary.''.
(b) EFFECTIVE DATE.—The amendments made by subsection (a) shall apply to payments made after December 31, 2010."
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FollowBefriend (2)66 threads747 comments
I think that was similar to the Health care bill where expanded 1099 would lead to more tax compliance. In current environoment, the legislature is finding ways to get more 1099's as a requirement piggyback on more known agenda such as health care and other bills
Income tax audits are increasingly automated, and 1099, to the extent that they can get as many as they can is a tool for the IRS to access you without tremendous effort. It is bound to happen anyway. The infrasturure is already there and developing.
There's two things that come into mind from the tax compliance effort. First, the landlord has to document when they spend an x-amount for accountants and maintenance, etc as so the landlord is not making up some phantom deduction or exagerating what they already spend. From that perspective, it makes it harder for the landlord to cheat. Secondly, a plumber has to report the income to the IRS if they know that amount has been reported to the IRS.
The fact of the matter is if landlord's don't put in phantom deduction and self employed reports their income fully, these are moot point. We know 90% of so cheats whenever there is no IRS cross check like W-2 and 1099. (people with more than-W-4) in some ways so I have no problem that the Legisislature is asking for more.
FollowBefriend (8)228 threads5,062 comments Davis, CA
I realize a lot of small-timers will feel persecuted, but I suspect this is more targetted at Rental Empire Big Fish. And many of them fudge quite a lot in this area and use black-market labor, which they want brought into the light. Maybe YOU will pass it along to the tenants, but King Bob running 30 apartment complexes is already charging what the market will bear, and has just been pocketing whatever he can hide from the IRS and spending it on hookers and blow. Small-timers will see the impact in extra paperwork but less worries of audit, seems an even trade.
FollowBefriend (48)308 threads15,720 comments 47 maleLafayette, CAPremium
I itemize my hookers and blow expenses under Schedule C, line 24b.
I talked with a co-worker who has rental property. He sort of shrugged and said "yeah if TurboTax has boxes for it next year I'll fill them in." It didn't seem a big deal for him. Although he did joke about gaming the $600 part.