A Guide To 1099 Forms
If we had to guess, we’d say taxes probably aren’t your favorite part of being an investment property owner.
However, there’s no doubt that landlord taxes are a critical part of your job. The rules and expectations are updated regularly by the IRS, but as of 2023, landlords are required to complete and send 1099s to all contractors for whose services they paid more than $600 for in a given tax year.
In this article, we’ll explain how to complete 1099s as a landlord based on the most recent updates to the tax code.
Note: Keep in mind that the information provided below is not a substitute for specialized tax advice from a qualified professional. Always seek professional advice about tax documents and requirements for your rental business.
What Are 1099 Forms?
1009 forms are a collection of different documents that you must file with the IRS if you receive any income throughout the year that isn’t from a typical employer. For instance, a 1099s tax form is used to report:
- Independent contractor income
- Rents
- Brokerage accounts gains/losses
- Gambling winnings
- Retirement plan distributions
- Other types of income
Anyone who receives non-employee income in a given tax year needs to receive and file a 1099. This includes independent contractors you may pay for services like HVAC repair or landscaping. By contrast, traditional income from a business or employer is reported on Form W-2.
What are the Types of 1099 Forms?
There are many different types of 1099 forms, and payments between individuals and businesses (e.g., a property management company) or other third parties need to be reported differently. Here are a few of the different 1099 forms relevant to landlords:
- Form 1099-NEC (Non-Employee Compensation) is filed by freelancers and independent contractors to report non-W-2 income over $600. Landlords need to complete these for each contractor they paid more than $600 during the tax year (e.g., independent contractor property managers).
- Form 1099-MISC (Miscellaneous) is used to report miscellaneous non-W-2 income from a variety of sources. The IRS requires you to file Form 1099-MISC for each person to whom you paid at least $600 in rent, prizes/awards, or payments to an attorney. For example, if you rent office space for your leasing agents, you would need to file a 1099-MISC rental income form. (Note: Before 2020, Form 1099-MISC was used to report payments to independent contractors. Now Form 1099-NEC is used for this purpose. This was one of the most significant tax code changes for landlords over the past few years).
- Form 1099-K (Payment Card and Third-Party Network Transactions) reports payments received from cards and online payment apps or third-party payment networks. Payment processors are required to file a 1099-K for you if 1) they have a yearly payment volume over $20,000 and 2) they have at least 200 transactions from you. If you’ve received more than 200 rent payments via payment cards, your third-party payment processer (such as your property management software platform) may issue this form for you.
Who Do I Need to Complete a 1099-NEC For?
If you’ve hired any workers for your properties in the past year, you will most likely need to complete a 1099 form for those people and send them a copy.
This includes freelancers, independent contractors, and other people you’ve hired and paid more than $600 for any services on your rental property, including the following:
- Landscaping
- Legal work/attorney fees
- Electrical work
- Locksmith
- Plumbing
- Painting
- Housekeeping
- Cleaning
- Bookkeeping/accounting
- Pest removal
- Renovations
- Inspections
- HVAC repair
1099-NECs are not required for payments made to corporations (LLCs are not treated as corporations for this requirement if they are taxed as a C or S corporation).
If you aren’t sure whether you’re required to complete a 1099-NEC for a certain person or entity, you can use Form W-9 to check. Form W-9 is a request for the vendor’s taxpayer identification number and certification, and it provides important tax information that indicates whether Form 1099 is required to be completed for that vender.
Who Do I Need to Complete a 1099-MISC For?
Form 1099-MISC is for reporting non-employee income over that wouldn’t otherwise be reported, including:
At least $10 in:
- Royalties
- Broker payments in lieu of dividends of tax-exempt interest
At least $600 in:
- Rents
- Prizes and awards
- Other income payments
- Medical and healthcare payments
- Crop insurance proceeds
- Cash payments for fish you purchase
- The cash paid from a notional principal contract to an individual, partnership, or estate
- Payments to an attorney (besides legal fees).
- Any fishing boat proceeds
The payer needs to issue, complete, and send a copy of this form to the payee and then file the original with their tax return. For example, if you settled a lawsuit and sent your attorney more than $600 for that settlement, you would need to file a 1099-MISC. You’d also need to give or send your attorney a copy (note that your attorney’s legal fees are reported on Form 1099-NEC, not 1099-MISC).
How to Complete 1099s for Rent Using Form 1099-MISC
There are a few circumstances in which you would need to file a 1099 for rent. 1099s for rents includes payments for leasing office space (e.g., for your leasing agents) or payments for renting machinery.
To complete a 1099 for rents, you’ll first need a copy of the proper form. You can either order a hard copy, print one out from the IRS website, or file it electronically with the IRS.
Next, you’ll need to complete and file the form. Typically, you’ll need to supply your name, address, and Tax Identification Number (TIN), as well as the same information for the person you paid. Then you’ll put the amount paid in the appropriate box based on the nature of the payment. Form 1099-MISC is due by March 1 of the year following the tax year you’re filing for if you’re filing by paper, or by March 31 if you’re filing electronically.
For more information, see the IRS’s instructions for Forms 1099-MISC.
Remember, Form 1099-MISC is for reporting rental payments that you made—for example, the office space you rent. You should not file a 1099 for rental income you receive. A different form, Schedule E (Form 1040, Supplemental Income and Loss), is used to report the rental income you receive from your tenants as well as tenant paid owner expenses for your rental income taxes. Both of these types of income and others received from tenants (e.g., lease cancellation payments) are part of your taxable income as a landlord and must be reported via Schedule E.
Conclusion
Tax season is dreaded by many, and landlords have the especially difficult responsibility of navigating the complex forms required to report rental income and expenses. However, being informed about which tax forms are relevant to you (and getting the advice of a tax professional who is experienced in real estate transactions) is a sure way to be well-prepared come tax season each year.
