Information Reporting for Real Estate

Article written by John C. Newman, Esq.
Posted on Jun 13, 2012

By John C. Newman, Esq.

As a result of the Small Business Jobs Act of 2010, a person receiving rental income from real estate is treated as engaged in the trade or business of renting property (amended IRC §6041(h), effective for payments made after 31 December 2010). As a result of this tax law change, recipients of real estate rental income must make the same IRS information report as has traditionally been required of taxpayers engaged in a trade or business. To be specific, post-2010, when a rental income recipient makes a payment of $600 or more to a service provider, such as a construction contractor, a plumber, or a painter for services related to the rented premises the landlord must file an IRS Form 1099 with the IRS and provide a copy to the service provider.

The Congress wrote three exceptions into the new Form 1099 reporting requirement for landlords: (1) a de minimis rental income exception in an amount to be set by IRS: (2) a CIA and DOD exception for active duty members of the uniformed and clandestine services; and a hardship exception (again to be defined by the IRS).

As is well known to those who follow tax trends, the repeal for 2011 and later tax years of the exception to Form 1099 reporting for payments by businesses to incorporated vendors has created a fire storm. Likely, this tax topic was what President Obama was referring to in his State of the Union message when discussing red tape reform. The same day as the President’s speech, a bipartisan bill was filed in the Senate that would repeal the requirement for businesses to report payments made for goods and certain services to corporations in the course of the payor’s trade or business. One of the sponsors, Senator Baucus, had previously introduced such legislation in November 2010.

Whether the reinstatement of the repeal of the Form 1099 corporate payment exception, if passed, will have any effect on the new rental income reporting requirement cannot be predicted. Under normal Congressional procedures, a measure that decreases Government revenues must be “paid for” by revenue increases contained in the same legislation. The negotiations on this could look like the old saw: “Tax him; don’t tax me; tax that guy behind the tree.”


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