Are you one of the millions of Americans who own rental property? Do you enjoy filling out lots of extra tax forms? If so, you're in luck!
As reported by the Examiner's Susan Ferrechio, a provision of the Small Business Jobs Act passed by Congress last fall mandates that rental income be subject to the same tax reporting requirements as a business or trade. The law went into effect January 1st. I'll leave it to the Journal of Accountancy (it's one of your morning must-reads, right?) to explain what this means for property owners:
Thus, rental income recipients making payments of $600 or more to a service provider in the course of earning rental income are required to provide an information return (typically, Form 1099-MISC, Miscellaneous Income) to the IRS and to the service provider. This provision will apply to payments made after Dec. 31, 2010, and will cover, for example, payments made to plumbers, painters or accountants in the course of earning the rental income.
While rental property owners will not actually issue the required 1099s until early 2012, they need to start keeping adequate records of payments starting Jan. 1, 2011, so they will be prepared to issue correct 1099s. They will also need to obtain the name, address and taxpayer identification number of the service provider, using Form W-9 or a similar form.
The law does provide exceptions for those who the new requirement creates "hardship" and for those whose rental income is “not more than a minimal amount.” However, the IRS has yet to issue guidance defining who qualifies for these exceptions, even though the new law has already taken effect. Better start keeping meticulous records now -- fines for failing to file 1099s range from $60 to $250,000.
Suffice to say, landlords are none too happy about this onerous new regulation. Just ask Jeffrey Yorke, Vice President, Yorke Property Management, a family-run company with rental properties throughout the Mid-Atlantic region.
"We are already enslaved to the IRS with endless and mindless paperwork that takes us away from our main business of property management. This new rule obligates us to still more outrageous record-keeping and steeper accounting costs. Too many in Congress have had too little to do with operating a business -- small or large. Clearly, those bozos need to drink a big gulp of common sense," Yorke said.
If Yorke is any indication, this is not going to be a popular law. In fact, repealing this new tax requirement seems like an ideal opportunity for the new Republican majority in the House to establish their anti-tax bona fides.