Earlier this year, a bill named H.R. 5297: Small Business Jobs Act of 2010 amended tax reporting rules for landlords. Section 2101 establishes that, “a person receiving rental income from real estate shall be considered to be engaged in a trade or business of renting property”. Previously unincorporated landlords were not considered a “business” and therefore complicated tax reporting rules that generally only applied to corporations did not apply; however now they do!
While this bill expands government (the IRS specifically) and increases administrative costs to taxpayers to the tune of 3.3 billion dollars per year, its stated intent was to help small businesses. Unfortunately landlords have got caught in a political crossfire and now have a significant new tax reporting burden.
Here’s how to comply. This law takes effect for all payments made after December 31, 2010. Be prepared by following these steps.
1. Before hiring anyone who may bill for services greater than $600 during the year for their service, have them fill out and provide you with a W9 form. Do not do business with them until they return the form otherwise the IRS has heavy new penalties they will be imposing next year. Retain these forms, or best yet, scan and upload them to your file library for safe keeping.
2. Retain complete records of all expenses from each service provider (vendor). You are required for 2011 taxes to file a 1099 for any vendor whom you have paid greater than $600 through the year. The easiest way to maintain these records is with good property management software. With Rentec Direct you simply go to the Properties tab, and click Post Expense.
3. Prior to January 31, 2012 you are required to send a 1099-MISC to the vendor, and by February 28th a copy must be sent to the IRS and State. This is made easy with Rentec Direct’s 1099 assistance. During January 2012 provided all vendor expenses were entered throughout the year, simply click to print your 1099s with no further work to do.
Remember, these rules are for tax year 2011. This means any transaction after December 31st, 2010. CPAs, accountants, and tax preparation firms typically charge from $50 – $100 per form, plus hourly for research to compile information which can cost landlords thousands, possibly tens of thousands in tax preparation costs if you have them do this task on your behalf. By being prepared and following the simple steps above you can eliminate this potentially massive cost in your 2011 tax return.
HR5297 information obtained from: http://www.govtrack.us/congress/bill.xpd?bill=h111-5297
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Nathan is a member of Rentec Direct who provides property management software, tenant ach payment processing, and Rentec Direct's tenant credit, criminal, and eviction screening.
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