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Rental Activity and 1099s: Should You File or Not File?

The 2011 Form Schedule E, used for reporting rental income, has two new questions:
  • Did you make any payments in 2011 that require you to file Form 1099?
  • If “Yes,” did you or will you file all required Form 1099s?
The provision of the IRS code that required all landlords to file 1099s was repealed but somehow the IRS is still requiring and has given little instruction regarding the new questions.

The old rules presumably would subject rental real estate activities to 1099 reporting when the rental activity is considered “trade or business.”  Moving from investment to trade or business is a gray area.  For example, if you rent under a net lease arrangement where the landlord pays only taxes and interest then this can most likely be classified investment. If you are a “real estate professional” and have taken advantage of that classification on your tax return you are considered to be in the trade or business of real estate and most likely should be filing 1099s.

Conservatively and when in doubt, it may be best to file the Forms 1099 for rental real estate activities for any provider you paid more than $600. Note that payments with credit and debit cards are not required to be reported on Forms 1099 as they are reported by the credit card company.

This is somewhat of an administrative burden but for most it may require just a few additional forms.

-Courtesy of Ganze & Company, CPAs   

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