All persons engaged in a trade or business who make certain payments (including rent) in the course of that trade or business of $600 or more in any tax year to another person must report that information to IRS. For payments made after December 31, 2011, payments subject to information reporting will also include amounts in consideration for property and gross proceeds. A taxpayer whose rental activity is a trade or business is subject to this reporting requirement, but, under pre-Act law, a taxpayer whose rental real estate activity was not considered a trade or business was not subject to this reporting requirement.
New law. For payments made after December 31, 2010, the Act provides that, except as provided below, solely for information reporting purposes, a person receiving rental income from real estate will be considered to be engaged in a trade or business of renting property. Thus, recipients of rental income from real estate generally are subject to the same information reporting requirements as taxpayers engaged in a trade or business. In particular, rental income recipients making payments of $600 or more during the tax year to a service provider (such as a plumber, painter, or accountant) in the course of earning rental income are required to provide an information return (typically Form 1099-MISC) to IRS and to the service provider.
The rental property expense payment reporting does not apply to:
… any individual who receives rental income of not more than a minimal amount, as determined under IRS regulations to be issued at some future time;
… any individual (including one who is an active member of the uniformed services or an employee of the intelligence community) if substantially all rental income is derived from renting the individual’s principal residence on a temporary basis;
… any other individual for whom these requirements would cause hardship, as determined under IRS regulations to be issued at some future time.
Neither the term “substantially all” rental income nor “temporary basis” is defined for purposes of this rule. It is unclear whether the taxpayer’s intent will control for purposes of the “temporary basis” test, or whether IRS will set a length of time under regulations or other guidance.
For more information on this new reporting requirement, contact Attorney Moore McLaughlin, owner of All States 1031 Exchange Facilitator, LLC by e-mail at fmm@AllStates1031.com or toll-free at 877-395-1031.
Tags: 1099, 1099-MISC, 2010 Small Business Act, 2010 Small Business Jobs Act, rental real estate, rental real property