Do You Need To File a 1099 for Your Rental Property?

Are you engaged in a trade or business of renting a property?

If so: Yes — send forms to your contractors

Basically, to determine if you need to file a Form 1099-MISC for people you’ve paid $600 or more in relations to your real estate, you need to determine if you’re in the trade or business of renting property.

The IRS publications define a business as a for-profit activity, but that doesn’t mean that every for-profit activity is necessarily a business. IRS publication 925, specifically says “A trade of business activity doesn’t include a rental activity or the rental of property that’s incidental to an activity of holding the property for investment.”

Translation: You typically have to spend a significant amount of time performing services for and managing your properties for it to count as a business. If you own the property, but hire a management company to do all the work, you‘re not in a trade or business — which means you wouldn't be subject to a Form 1099 reporting requirements.

If you manage your own properties for a living, you are actually engaged in the business of renting property. That means you must issue a Form 1099 — specifically a Form 1099-NEC, which reports "Nonemployee Compensation — to your contractors. That way, they can report that income on their own taxes. I Although there is no clear guidance to determine if you’re in a trade of business, if you qualify as a real estate professional, you are  

Are you a real estate professional?

If so: Yes — send forms to your contractors

As mentioned above, if you’re a 1099 real estate professional, you must file a Form 1099 with the IRS. How do you qualify as a real estate professional?

• You must "materially participate" in a real estate business. The business of renting and leasing realty is a real estate business
• More than 50% of the personal services you perform in all businesses during the year must be performed in real estate businesses in which you materially participate
• Your personal services during the year must amount to more than 750 hours. For these purposes, you can’t count any work you perform in your capacity as an investor. You don’t have to work full-time in real estate to qualify as a real estate professional. Even if you have another occupation, you may qualify.

If you have multiple properties, you may elect to treat all rental real estate interests as a single activity, and thereby be able to meet the 750-hour requirement for all properties. You don't have to spend 750 hours on each individual property.

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Passive activity loss rules

If you conduct real estate property trade or business and qualify as a real estate agent, you’re exempt from the general passive activity loss rules. This is actually good for you, because losses resulting from such activities can be used to offset ordinary income.

‍Recent Tax Court rulings in favor of the IRS highlight the importance of properly maintaining records of time spent conducting real estate activities.

1099 rules for a tenants, landlords, and property managers

Here's who receives — and issues — which 1099 form.

Tenants

Gives 1099-MISC to: Landlord

Tenants in commercial leases paying more than $600 a year should send a form W-9 to the landlord before paying them. This will allow them to issue a 1099-MISC, as they're required to do. Tenants in residential spaces don't have to issue 1099s to their landlords.

If you're leasing a commercial space, you should issue a Form 1099-MISC to your landlord unless they’re taxed as a corporation.

Why not a 1099-NEC? It's because your landlord doesn't count as a contractor. Instead, you'll use the form designated for miscellaneous payments like commercial rent.

Landlords

Receives 1099-MISC from: Tenant

Gives 1099-NEC to: Property manager

You should receive a Form 1099-MISC from your tenant if they pay you over $600 in rent a year.

If you currently use a property management company to take care of your property, you'll need to issue a Form 1099-NEC for their service fees.

Property manager

Receives 1099-NEC from: Landlord

Gives 1099-NEC to: Contractors

Property managers will receive 1099-NECs from landlords whose properties they manage.

Property managers must then issue Form 1099-NEC for the following contractor that were hired and paid over $600 a year:

• Repairmen
• Plumbers
• Carpenters
• Landscapers
• Attorneys who handled evictions or collected unpaid rent (even if they belong to a corporation)

Note: Attorneys are the only types of contractors who should get 1099s even if they belong to a corporation. The other types of professionals only need 1099s if they aren't corporations.

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What information do you need to file a 1099?

If you have to issue and file a 1099 as a taxpayer, you will need the following information:

• Tax ID Number: This is a Social Security number (SSN), Individual Tax Identification Number (ITIN), or employee identification number (EIN) for individuals.
• Address: This makes sure that a copy of the 1099 can be sent to the recipient, for their tax reporting requirements.
• Funds paid: You will need to know the amount of money issued to the individual during that tax year.

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Bottom line: Anyone who receives rental income must report their earnings on their taxes. The IRS will generally know about these anyway, since if you receive a 1099-MISC reporting that income, the IRS will also get a copy.