Landlords Subject to New Tax Requirements for 2011

The brand new Small Business Jobs Act of 2010 enacted by President Obama in September, 2010 includes a new provision that affects landlords.

Beginning in 2011, all landlords must provide 1099-MISC forms to all service providers for payments in excess of $600 during the year. Previously, only landlords who rented property as a "trade or business" were required to make a filing. Now, the law extends to any and all landlords, even those who rent out a bedroom or make a short term rental. The law amends the definition of being engaged in the "trade or business" of renting property to include "a person receiving rental income from real estate".

As such, all landlords must issue a 1099-MISC to any service provider who the landlord pays more than $600 in any given year. This means that if you rent your property and pay an attorney to help with an eviction and pay an invoice for $1400, you must issue the attorney a 1099-MISC. Same goes for landlords who, say, pay a cleaning service $75 per month ($900) to clean their rental property.

The law does provide three exceptions. First, it excludes active members of uniformed services or intelligence employees who are renting their primary residence while on assignment. Next, the law excludes any individual who receives rental income of not more than the minimal amount as determined by the IRS regulations. No such regulations yet exist. Finally, it provides a hardship exception for landlords, as determined by the IRS regulations. Again, the IRS has not issued any regulations as to what sort of hardship might be sufficient to excuse performance.

Interestingly, the law also provides for increased penalties for failure to file informational returns.

The 1099-MISC forms must be filed in early 2012, however, landlords must begin the process of maintaining their records beginning as of January 1, 2010. The prudent landlord will collect the name, address, and federal employer identification number (FEIN) from people they pay for goods and services. This means landlords must also become facile with IRS form W-9.

Prudent landlords will be keeping their books current beginning with the new year. Better yet, prudent landlords will want to get a "landlord tune-up" for 2011 from the attorneys at Reda | Ciprian | Magnone, LLC.