The Small Business Jobs Act of 2010 (2010 Jobs Act) requires information reporting for rental property expense payments of $600 or more that are made after December 31, 2010.
Generally, if a person (payor) makes payments to another person (payee) in connection with the payor’s trade or business totaling $600 or more during a calendar year, the payor is required to send the appropriate information return to the IRS and the payee. Under the 2010 Jobs Act, any individual taxpayer who receives real estate rental income is considered to be engaged in a “trade or business” for purposes of the information reporting requirements. This is true even for individuals engaged in a “passive investment activity” under general tax rules and principles.
The reporting obligation applies if the total of all payments made by the payor in any tax year is $600 or more, even though the amount for any class of payment by itself is less than $600. Payments that must be reported include:
- salaries, wages, commissions, fees, incentive awards and other forms of compensation; and
- interest, rents, royalties, annuities, pensions, and other gains, profits and income.
Form W-2, Wage and Tax Statement, is the information return used to report payments to employees, whereas Form 1099-MISC, Miscellaneous Income, is generally used to report other types of payments.
In order to gather information on payees, you will need to send them a Form W-9, “Request for Taxpayer Identification Number and Certification”. You should inquire with the payee to make sure that the name showing on Line 1 of the W-9 and the taxpayer identification number match up with the name and number as reported to the IRS.
An exemption from the filing requirement is extended to members of the uniformed services or employees of the intelligence community who rent out their principal residence on a temporary basis. In addition, the IRS is authorized to issue regulations that exempt individuals whose rental income falls below a minimum threshold or who meet certain hardship standards. Failure to comply with these requirements may result in the imposition of penalties, including penalties for failure to file the information return and failure to furnish payee statements.
The new information reporting rules may increase the paperwork and filing burden, as well as the related costs, for your rental property. Again the rules apply to payments made after December 31, 2010. If you have any questions or would like to discuss recordkeeping and other compliance issues please contact your HLB Gross Collins, P.C. representative.