Big 1099 Changes in 2011 for Business Owners and Rental Property Owners

This post is in: Real Estate


Beginning in January 2011, if you pay any one person or company more than $600 in a year to provide you with either goods OR services, you’ll need to track that information and issue that person/company a 1099-MISC in 2012. You can thank the Patient Protection and Accountability Act (PPACA) passed in March of 2010 for this new rule.

Under the old rules, you only provided 1099-MISCs to service providers who met the $600+ threshold, and then, only those service providers who operated as a sole proprietor, LLC or LP. You weren’t required to track S and C Corporation providers.

That has now changed, and the tracking requirement applies to everyone … unless specifically exempted by the IRS. So far, it looks as though you’ll have two exemptions to this new rule:

  • (a) Payments to tax-exempt goods or service providers, and
  • (b) Payments made by credit card, when those payments are captured under new IRS rules concerning payment card and 3rd party Network Information reporting, unless certain conditions apply.

If you’re a rental property owner, you’ve got to abide by the same rules. Under the recently enacted Small Business Jobs Act, P.L. 111-240, rental property owners who receive rental income will be required to issue Forms 1099-MISC to service providers for payments of $600 or more during the year. That will include things like payments made to plumbers, painters or accountants in the course of your earning that rental income. The responsibility for tracking information begins on January 1, 2011, and you’ll be required to send out 1099-MISC forms by January 31, 2012, to each service provider. That means making sure you get W-9s in place early.

Exceptions for Property Owners

The law provides an exception for those property owners who can show that the requirement will create a hardship for them. We don’t know what that means yet: the IRS has been directed to issue guidance regulations on this topic, but hasn’t yet done so. The law also provides an exemption for individuals who receive rental income of “not more than a minimal amount.” Again, we’re waiting on IRS guidance to know what this means and what the minimal amount threshold will be.

One thing we do know: if you’re in the military or an employee of the intelligence community you’ll be exempt from this requirement, if substantially all your rental income comes from renting your principal residence on a temporary basis.

Assuming nothing happens between now and January 1st, your best option is to plan accordingly, track expenses, and collect W-9s from everyone until the rules are clarified.

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