Form 1099 For Rent: What Tenants and Landlords Need To Know

You can always count on the Internal Revenue Service (IRS) to remind you every year -- with their myriad of IRS forms -- that tax day is right around the corner.

One of the forms you'll receive in your mailbox in February is the tax Form 1099-Misc. As we'll see later, it can have a huge impact on your tax life. Turning a blind eye to it can lead to severe consequences, so it should be among your biggest priorities when tax season comes knocking.

That said, as a tenant or landlord, you should be properly acquainted with some common IRS forms and schedules before filing your taxes. So before we delve into the nitty-gritty details of form 1099 for property managers and occupants, we'll first look at some of the most common and essential IRS forms.

Let's get started.

Common IRS Forms and Schedules

Amongst the numerous IRS forms out there, there are some that are more significant and every taxpayer needs to be aware of them. These include:

Form 1040 and Form 1040-SR

The mother of all IRS forms, Form 1040 is the standard federal income tax form that people use to report their income, calculate the number of their tax bills or tax refunds for the year, and claim their tax deductions and credits.

Depending on whether or not you want to claim 1099 deductions and certain credits, some schedules may or may not be tacked onto that. These include:

• Schedule A ( Form 1040 or 1040-SR), Itemized deductions - used by filers to record itemized deductions.
• Schedule B ( Form 1040), Interest and Ordinary deductions - to report interests and ordinary dividend income.
• Schedule C ( Form 1040 or 1040-SR), Profit and Loss from Business (sole proprietorship) -used to report income or loss from a profession practiced or a business operated as a sole proprietorship.

Check out Bonsai's independent contractor expense tracker to help you automatically categorize and record your deductions.

The W-2: Income from a job

The W-2 is sent to employees by their employers and it shows, among other things, how much your employee paid you during the year, the amount of taxes withheld on your behalf, and how much you have contributed to the company’s retirement plan. A copy of this form is also sent to the IRS.

The W-2 has a companion form, the W-4 which you fill in to reduce your withholding in a situation such as when you get a huge refund from the previous year. Check out our article comparing a 1099 versus a W-2.

Form 4868: Getting an extension

For all those late tax filers, this is the form to get you out of a fix. You must however file this form by the April deadline so that you may be granted an extension until October. You will have to send an estimate of what you owe to the IRS along with your request for extension.

You should be aware that if the estimated payment you send in is less than what you owe, you’ll need to pay interest on the difference. If you miss your extension date, the IRS will slap a 5% penalty fee on you for every month your returns are late.

The IRS Form 1099-Misc and its purpose

The IRS requires businesses to issue a 1099 to all unincorporated entities for which it paid for services exceeding $600 in any given tax year. They'll receive a 1099 for rental income or payments that a company makes for their rental properties -- including office space, retail and commercial space -- are also included in this.

The payer must also be responsible to issue Form 1099-misc when they have paid $600 to an individual as well.

What is the 1099-Misc Form?

This is the tax form that reports the year-end summary of all non-employee compensation. The 1099 tax form comes in several forms, with the four most common ones being the 1099-DIV which reports dividends and distributions from investments, the 1099-INT which reports interest earned on investments, 1099-OID for when you buy a note or bond for less than face value, and 1099-MISC or 1099-NEC for any income that you do not acquire from investments.The form covers self-employment and independent contractor income, rent, royalties, crop insurance proceedings along with other several kinds of miscellaneous income.

The party who makes the payments is the one responsible for filling the form. The IRS has severe penalties for not filing 1099 forms.

The Internal Revenue Service (IRS) uses Form 1099 to capture miscellaneous income that might be forgotten when it comes to reporting and filing your yearly taxes.

Who needs a Form 1099?

A form 1099-MISC is not only for specific people. All kinds of people can get the form for various reasons as it is essentially a record of income.

You, as an individual, can receive a form 1099. This form will usually have your taxpayer identification number or your social security number on it. This means that the IRS will know that you have received the money. And, if you do not report the income on your tax return, the IRS will know too.

Independent contractors and freelancers, usually receive the 1099-Misc or the 1099-NEC from their clients. The money that has been paid to the contractor and freelancer by the client will be reflected on this form. Professional contractors who are listed as Limited Liability Corporations or LLCs are also regarded as 1099 vendors. This means that your business has to file 1099 forms for them.

1099 AirBNB hosts who runs a short-term rental business will also receive this tax form.

File Form 1099 for Tenants, Landlords, and Property Managers

The current tax law defines receiving rental income as conducting the trade or business of renting out a property. This means that it is subject to Form 1099 reporting requirements. Tenants, landlords, and even property management companies, are often confused about when to send or receive IRS Form W-9 and whether to file IRS Form 1099. The help of a good accountant who is familiar with tax filing requirements comes in handy in such cases.

There is also the commonly used IRS  Form W-9 which is a request for Taxpayer Identification Number and Certification. Sole proprietorship business owners and independent contractors will often have their clients request that you fill out and send a W-9. This is so that they are able to prepare your 1099-NEC form to report the payments they make to you. If you need more time to file your form, you can request a 1099 extension.

Property Management Requirements To File Form 1099

The property management business has particular scenarios that determine how or when to use the form 1099. Here are a few key guidelines to follow if you're the manager of property for business or trade, a lessor, or lessee :

Tenants

Tenants in commercial leases and in residential leases where they are operating a trade or business from the property, and paying a landlord more than $600 annually should ask and get a W-9 from the landlord before paying them. You are required to file form 1099 if the W-9 shows that your landlord is not taxed as a corporation.

Landlords

If you have a commercial tenant that pays you over $600 of rent annually, you are required to supply him/her with your Form W-9.For any rental income you receive from your tenant, you will be required to file a Form 1099.

Mark you calendar for when forms are due so you can avoid an IRS 1099 late filing penalty.

Property management companies

The landlord should give their property manager a Form W-9 file. The property managers then proceed to file Form 1099 to report rent paid in excess of $600 during the tax year. Property managers are required to do the same for all contractors not taxed as corporations that were hired and paid more than $600 over the year.

You will have to  file a Form 1099 for your property manager’s service fees, if you use one. These fees do not include reimbursed expenses. And although the property management company will be responsible for issuing 1099s to all contractors they have hired to maintain your property, you must also be keen to supply a form W-9 to your property manager.

Remember that the IRS requires both the W-9 and 1099 forms. However, there are a few exceptions to the rule, and they are:

• For credit card payments and PayPal, the filing requirements do not apply as these payments are usually reported by the card issuers and third-party payment networks.
• If the rental property is owned by a corporation, a Form 1099 form is not required.
• You do not submit a W 9 form to your landlord if you are a commercial tenant and pay less than $600 of rent throughout the year.
• If you pay rent to a property management company or real estate agent instead of directly to a non-corporate landlord, your expense is not subject to Form 1099 filing requirements.

Here's To Handling Real Estate Taxes

A Form W-9, when properly completed and signed, will typically indicate when the Form 1099 is required. This is to ensure that you have all the proper and necessary documents that you will need for your annual filing.

The Form 1099-NEC, the non-employee compensation form, must be mailed to recipients and filed with the IRS by January 31. Conversely, the Form 1099-MISC, which has reports of all other income, must be mailed to recipients and filed with the IRS by March 31. We recommend you use our organizer for tax receipts and maximize your real estate agent deductions.

Property managers, landlords, and owners with numerous properties must file a 1099 form and may have trouble with the filing process. With the help of a CPA familiar with tax filing requirements in the real estate rental industry, they can easily organize and streamline the process.