Do you rent out real estate in Arizona? Are you a landlord with tenants in a former or second home in the Phoenix metropolitan area? If so, the government has imposed a new, controversial and burdensome tax requirement that will increase your record keeping duties next year.
Starting in 2011, the new rule requires that all landlords who receive $600 or more in rent during the year must send a 1099 Form to all service providers that the landlord paid $600 or more during the year. This includes the regular type of contractors landlords retain such as plumbers, carpenters, yard services, and repair people. The 1099 must be provided to both the IRS and to the service provider
The new requirement applies to owners of both residential and commercial property. Prior to 2011, this requirement had only applied to those involved in full-time property management and those whose primary business is property management, but now the requirement covers all types of landlords. Thus, “mom and pop” investors and those who invest in real estate for their personal portfolios are subject to the new reporting requirement.
Landlords will need to gather federal tax ID numbers from service providers in order to file the 1099s. Failure to file the 1099s with the IRS can result in fines of $50 per 1099 not filed with the IRS.
Why are these requirements necessary? Congress adopted the provision to help “pay for” provisions in a small business bill (HR 5297), including bonus depreciation and expensing for leasehold improvements (in lieu of eliminating those deductions). The rule is intended to “encourage” contractors who have received payments from landlords to actually report that income through a section 1099. As a result, it should increase the amount of taxes paid to the treasury.
The National Association of Realtors opposed extending the 1099 reporting rules to small landlords, because is burdensome and is a trap for the “little guy”, but without success.