I did not issue 1099 for expenses, can I carry over to next year?

Question

Hello,

I had some renovation expenses in 2020, for which I was not able to issue 1099 forms on time and to send out to the subcontractors. Does IRS accept carrying those expenses over to 2021 if I issue and send out the forms in 2021?

Thank you for reading.

Michael Plaks · Answer

@Mazyar A.

1. You cannot deduct anything until your rental property is "placed in service" which, from what you described, did not happen until 2021. It might have happened in 2020 if your rehab was completed in 2020, and you offered the property for rent in 2020, but unlikely. You then cannot deduct anything on your 2020 taxes.

2. Regardless of when you placed the property in service, rehab expenses cannot be deducted in full. You may be able to deduct some specific items, like appliances and carpet, but not the entire rehab. Most of the rehab has to be depreciated which means deducting it in tiny pieces over almost 30 years.

3. If you do have a loss from your property, you may or may not be able to deduct this loss against your other income. It depends on how much you make from your job(s) and on some other factors.

4. And yes, 1099s for labor are required. However, this requirement is separate from your ability to deduct (or depreciate) the costs. 1099s must always be issued for the year when you actually paid your contractors, regardless of whether or not you deducted it. Similarly, you can deduct (or depreciate) legitimate labor costs even if you failed to issue 1099s.

5. 1099s are technically not required for rentals. But if you do not issue 1099s, you also likely forfeit your right to deduct business overhead expenses, like marketing, education etc. For this reason, I recommend that all my landlord clients issue 1099s.

Wayne Brooks · Answer

@Mazyar A. As far as expensing the renovations, it’s a moot point..,,repairs/renovations getting a property Ready to rent for the first time, aren’t expensed anyway, they get added to your basis/depreciated. Some carrying costs like insurance/taxes may be able to be expensed in 2020.

Ashish Acharya · Answer

If you are talking about rental activities, you don’t even have to send out 1099s if you are not trying to claim QBI deduction.

Even if you had to send out the 1099 but did not, I would still take the deduction. You cannot carry over the expenses just because you did not pay 1099.

Mazyar A. · Answer

Michael, Thank you so much for your thorough comments.

Mazyar A. · Answer

Wayne

Thank you for your response. As a rookie in real estate investment, I am wondering so when and for what can one deduct some expenses?

Thanks

Mazyar A. · Answer

Ashish

Thanks for your response.

1) I bought the property in 2020 to renovate and rent it out. The property is not rented yet, but my goal is (or would be) to deduct the renovation expenses from my overall income (from this property (with zero income) plus my W2 income). Isn't this equivalent to claim QBI deduction?

2) You said: "Even if you had to send out the 1099 but did not, I would still take the deduction." Doesn't taking deduction for labor costs always need filing 1099 for expenses over $600? I mean if one claims deduction but doesn't file 1099s, doesn't it cause trouble with IRS?

Thanks

I did not issue 1099 for expenses, can I carry over to next year?

I did not issue 1099 for expenses, can I carry over to next year?

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