Real Estate Insights

During 2010 new information reporting requirements have been added to the duties of investment property owners and the provisions are permanent. As part of the recently passed Small Business legislation (HR 5297), this new revenue provision will create additional burdens for anyone who receives rental income from either residential or commercial property.

Under current law, property managers are generally required to report expenditures they incur as part of their management of rental property by properly filing an IRS Form 1099. In the case of real estate, persons subject to the current law would include full-time property managers, real estate professionals engaged in property management-type businesses, whose primary business is property management and other real estate services.

But the new law expands this rule so that ANY person who receives rental income (no longer limited to property managers) will be required to report all expenditures of more than $600 to anyone (or to any business) from whom they purchased services. Thus, “mom and pop” investors and those who invest in real estate for their personal portfolios are now subject to the new reporting requirement. But, only aggregate annual payments of $600 or more for services (but not goods) will be required to be reported.

This means that if you own investment property and are renting it out without the help of a licensed property manager, then for any services purchased for the maintenance of the property (such as services provided by plumbers, carpenters, yard or garden workers, electricians or any other service providers), you will be required to file an IRS Form 1099 any time the total expenditures/payments to a particular vendor in one year exceed $600.

The new requirement goes into effect as a permanent feature of the law starting with expenditures on or after January 1, 2011 and will require the landlord to file IRS Form 1099 with the IRS and with the person who provided the service. The rule is imposed to assure that those who have received payments actually report the income.

For more information please see the IRS website: http://www.irs.gov/