If you own a rental property or rent out your vacation home there is a new IRS requirement and will necessitate more paperwork. Tucked into the Small Business Jobs Act enacted in September 2010 is a provision that expands Form 1099 reporting requirements to include independent landlords as of Jan. 1, 2011.

Under prior law, taxpayers whose primary trade or business was rental real estate ― such as owners of multifamily apartment buildings, property management companies, etc. ― were subject to Form 1099 reporting requirements. However, landlords not in the trade or business, e.g. owners of a few rental homes or a second home used for rental purposes, were not subject to 1099 reporting requirements.  

Beginning with payments made in 2011 the new provision requires taxpayers who own rental properties to issue a Form 1099 to any unincorporated service providers.  This includes plumbers, painters, accountants, housekeeping, property managers, etc. that you paid $600 or more to in a year, Those 1099s (typically, a 1099-Misc) have to be sent to the Internal Revenue Service as well.  The IRS has already said it won’t require 1099s for purchases made with a credit card to companies such as Home Depot, Wal-Mart, Office Depot or Staples, assuming you don’t pay cash for your purchases.  

Further, the millions of landlords covered by this new requirement will also be subject to the expansion of the 1099 reporting requirements that was included in the health reform bill passed in March 2010.  Starting in 2012 that bill requires businesses, charities and even local governments to issue 1099s to all companies they buy more than $600 of goods or services from―not just to unincorporated service providers.

Several interest groups are protesting the additional paperwork burden on taxpayers and asking that this provision be revoked. However, it is wise to be prepared for 1099 reporting in 2011.  According to Janet Novack Executive Editor of Forbes,  “don’t expect Congress to retreat on the new landlord 1099 requirement, which is billed as a  ‘tax gap’ closer that will raise $2.5 billion over the next decade” Ms. Novack is referencing the findings of the GAO 2008 Report, TAX GAP, Actions That Could Improve Rental Real Estate Reporting compliance.  2008 report.” 

Forms 1099’s are typically sent to service providers the end of January.  As service providers can come and go during the year, an up-dated 1099 file is a necessity.  I recommend you begin getting a Form W-9, which provides you with the providers’ information for the Form 1099, from all your service providers now.   Prepare for 2012 and get W-9’s from both your unincorporated and incorporated entities.