Do I Need to Issue MISC-1099s?

15 Replies

As an individual owner, do I have to send 1099 to individuals I hired to work on my rental properties? I know as a Corp or LLC, I do, but no sure as an individual owner if I'm supposed to send them 1099s.

Thanks,

Azita

I just read another thread saying if you are not a real estate professional, then as a landlord, you are not required to send 1099's 

If you flip a house, you do.

Then the question is if I flipped a property and also own rentals, does it make me a real estate professional even though I have a primary job/profession?

Or do I need to issue 1099s for the flip, but not the rentals?

This is so confusing.  I didn't have anyone fill out W-9s, so going back now might be an issue!

@Azita S.

You may want to qualify what folks mean when they say "not required." 

"Not required" because you don't have to do it per the relevant IRS rules/laws/guidelines/policies, or "not required" because the IRS is unlikely to ever discover that you broke this rule and if they do the consequences are minimal compared to the benefits, or "not required" because there's no way in hell the IRS could ever have any way of discovering it in a million years?

How frank can you be with your CPA?

If you pay someone for services in the course of business, you must send a 1099 for any amount over $600. I am a landlord and I send 1099s. It's not too late to collect W9s from your vendors. You have until 01/31 to send out 1099s. 

You can google the IRS site for more information and also talk to your CPA. They will know exactly what you should do.

Landlords do 1099s.  They have nothing to do with being a real estate professional.  For your own house you live in you are probably right.  For a business if you do not do 1099s don't plan on using the tax deduction.

@Azita S. This topic comes up from time to time and no one ever seems to agree on the correct answer.  Partly because the issue can be so confusing, even among tax professionals. 

I am just a landlord, not a tax professional.  However, I do pay a tax professional to give me and advice and do my taxes.  With that being said, based on what I have been advised for my own situation as a landlord, as well as my own research on the subject, I do NOT have to issue 1099's - even if I pay one of my contractors over $600.  Your situation may be different. 

According to my tax attorney, I don't need to issue them because I'm treating my rentals as a "passive activity and not a business".  (This is often the case for small landlords.)

You would have to issue them for your flips though, and/or if you did actually fall under the classification of a "Real Estate Professional".  But that term has a specific meaning according to the IRS, and the mere fact that you do a flip doesn't make you one.  I don't know if you are or are not one, but you can lookup the IRS rules here: Real Estate Professionals.

I realize my answer conflicts with all of those already given, but you can read more on the topic here and decide for yourself:

BiggerPockets topic: Do you issue 1099s?

BiggerPockets topic: 1099 contractors?

Article by CPA: Small Landlords Not Required To File Form 1099

In the end, I'd suggest doing whatever YOUR tax professional advises you to do.

There is an argument that passive investors do not have to issue Forms 1099-MISC because they are not engaged in a business. If you are actively managing your properties, you are most likely engaged in a business and issue a 1099.

Even if you aren't going to issue a 1099, I STRONGLY encourage you to get TINs (EINs) for your vendors and document the corporate status of any corporations that you pay. If you pay a non-corporate entity or individual for services and do not have the TIN before making payment, you are liable for 28% of the amount of the payment. The only way to get out of that is to get the payee to sign an affidavit (Form 4669) under penalties of perjury attesting to have reported the income on their tax return. That is not easy to get. Collecting a TIN after the payment will not alleviate your liability to the IRS for this.

The penalty for not reporting is $260 for the copy to be provided to the payee and $260 for the copy to be provided to the IRS.

The penalty if you intentionally disregard your obligation to file is $520 for each copy, or 10% of the amount required to be reported (20% total).

I talked to my CPA and she recommends sending 1099s  to everyone who got paid $600 and more to air on the safe side, but she is my CPA, she charges me per 1099 she sends out, so her opinion to me is bias!  

Now I have to track a few people to get their SSN or TIN to send them 1099s on the flip, but according to what I have found, for the rentals, since it's not a business I don't have to.

I spoke to a few fellow landlords who never send 1099s and have been landlords for ages!

I will admit that I do not send 1099s on the properties that my wife and I own directly. For the properties we own with others through an LLC, I think I do too much work to argue that the LLC is not engaged in a business. So, we issue 1099s for that. We don't pay anyone but the property manager directly on the personally owned homes, and I have their TINs, so the risk is limited.

@Azita S. there is not a requirement for landlords to issue 1099s. By "not a requirement" I mean it doesn't appear in the IRS code or Tax Court cases as far as I'm aware.

The people saying landlords must issue a 1099 are likely dealing with a conservative CPA. Nothing wrong with a conservative CPA, except once you find out they are conservative you have to question all advice and whether or by you are truly operating a tax efficient business.

Ask them to cite IRS code or a tax court case and they likely can't do it.

I tell my clients that being a landlord is a grey area. You don't have to issue a 1099, but it may be a good idea for two reasons: (1) it's a good business practice and (2) you don't want to be the first landlord to be made an example out of.

I have several landlord clients that do issue, and also those that don't. I try to explain both sides of the coin and leave it up to the client.

Originally posted by @Shadonna N. :

@Brandon Hall can you write off the expenses paid to the vendor if you don't file the 1099.  What if the vendor refuses to provide the EIN/SSN?

 If the vendor is refusing to give you an EIN, then the vendor may not be operating ethically as they may not be reporting all income earned on their tax returns. You could play hardball and say "I need your EIN or SSN or I'll have to protect myself and report you to the IRS" or you can take your chances and write off the expense.

You can always write off the expense as there are other ways to verify. But if audited, the IRS may asses penalties on your failure to issue a 1099. So do the best you possibly can to protect yourself.

I strongly recommend that whether you issue 1099s or not, you require an EIN or SSN from every vendor you pay (and that includes a property manager who withholds a fee from rent collections) before making any payment to them. There is a very large potential liability related to not having a TIN before making a payment. The penalty for failing to report is much smaller and defensible. If the IRS successfully argued that you are operating a trade or business, you aren't going to be wiped out by the penalties. Being liable for 28% of every payment you make could really hurt. (There's no liability for not having the TIN if you don't have to report, so in either case, both risks are dependent upon the IRS arguing you are engaged in a trade or business.)