Do You Own A Rental Property? Poof! You Are A Business Owner!

Did you know buried in last September's Small Business Jobs Act of 2010 are new 1099 rules for owners of rental real estate?  For the 2011 tax year, the IRS will consider owning 1 or more rental  properties “a business” for purposes of the 1099 requirements. 

This means property owners must file a 1099 with the IRS for any service provider paid $600 or more in 2011 for services.  Services can range anything from yard care to accounting.  Owners must provide a copy of the 1099 to each payee. 

There are exceptions... Congress has authorized the IRS to create exceptions that will exempt property owners from the 1099 rules in two cases:

1) If they receive only minimal amounts of rental income.  The IRS needs to issue guidance on what is considered a minimal amount. 

2) The rental income is mainly from the temporary rental of a former principal residence.

The process becomes even more tedious.  As part of the 1099 process, the property owner must obtain a taxpayer ID number (TIN) for each payee. If the owner is unsuccessful in collecting a TIN, the owner must withhold Federal Income Taxes from payments to that payee and send the withheld taxes to the government. 

Did you know, the IRS can assess a penalty of up to $100 for each failure to file a 1099 with the IRS AND for each failure to send a payee statement.

My prediction, accountants are going to be busier than ever working on 2011 taxes! Contact your CPA with questions regarding the new 1099 rules. 

As always, anyone with mortgage questions EMAIL ME, I am happy to answer questions. I am licensed to provide residential mortgages in Wisconsin, Illinois and Texas. 

Investors can read my latest blog entry about the new financing rules which allow an individual to finance up to 10 properties total.  The current rule is 4 total properties. 

(The old rule allowed an individual to finance up to 10 properties total.  With the economic downturn, the rule was changed to 4 properties.  Most recently, some lenders are allowing 10 total properties to be once again financed)