Keith Mack
Landlords and property managers are required to file Form 1099 for rental income over a certain threshold. The threshold has changed over time, with the latest update requiring landlords to report rental income exceeding $5,000 for 2024, $2,500 for 2025, and $600 from 2026 onwards. This change, implemented by the IRS, aims to address unreported income earned through non-employment channels. Landlords must also provide Form 1099 to independent contractors they hire for repairs and maintenance if the total payment exceeds $600. These tax law changes impact how landlords collect and report payments, including those made through third-party platforms such as PayPal, Venmo, and Zelle.
| Characteristics | Values |
|---|---|
| Who must file Form 1099? | Landlords and property managers |
| When to file Form 1099? | For rental income over $600 |
| Rental income threshold for 2024 | $5,000 |
| Rental income threshold for 2025 | $2,500 |
| Rental income threshold from 2026 onwards | $600 |
| Form 1099 used for | Reporting income from self-employment, interest, and dividends |
| Form 1099-NEC used for | Reporting payments to independent contractors |
| Form 1099-MISC used for | Reporting royalties, prizes, medical payments, and other income |
| Form 1099-K used for | Reporting payments for goods or services, including rent |
| Consequence of not filing Form 1099 | IRS audit and additional taxes |
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What You'll Learn
The American Rescue Plan Act of 2021
The Act provided direct economic stimulus payments to individual taxpayers with incomes of $75,000 or less. It also allocated $350 billion in assistance to state and local governments, $14 billion for COVID-19 vaccine distribution, and $130 billion to schools to support their safe reopening for in-person instruction. The American Rescue Plan Act also expanded the Child Tax Credit (CTC), distributing a total of over $92 billion to the families of roughly 61 million children in the second half of 2021.
The Act also included several tax provisions. Forgiven student loan debt was made tax-free, should it be cancelled by Biden or Congress. The reporting requirement threshold for Form 1099-K was reduced from over $20,000 and 200 transactions to over $600 with no minimum number of transactions, effective from the 2022 tax year. This change was expected to impact gig workers, independent contractors, and casual online sellers, and was projected to generate $8.4 billion over the next decade. The Act also included three tax increases on large corporations and wealthy individuals, collectively expected to raise $60 billion in revenue. These included limiting the ability of publicly traded companies to deduct executive compensation from their corporate taxes and repealing a provision that gave multinational corporations additional discretion in accounting for interest expenses.
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Rental income reporting
The IRS requires landlords to report all rental income, regardless of whether they receive a Form 1099-K. This includes any payments received from tenants in exchange for using the property, such as monthly rent and security deposits. Landlords must also report any fees for services, such as parking, deductions from tenant deposits for damages, lease cancellation payments, or tenant-paid owner expenses.
There are several 1099 forms that landlords may encounter when reporting rental income:
- Form 1099-K: This form is used to report payments made through online transactions, such as payment cards, online payment apps, and online marketplaces. Landlords will receive this form from the payment processor if they receive $5,000 or more in rental income through these platforms.
- Form 1099-MISC: This form is used to report rental income received via cash or checks. If a business pays a landlord $600 or more in rent, they must issue this form.
- Form 1099-NEC: Landlords must file this form to report payments made to independent contractors, such as repair services or cleaning services, exceeding $600.
It's important to note that the IRS has introduced a phased approach for reporting thresholds. While the final mandate has not yet taken effect, third-party payment platforms may still issue 1099-K forms for totals over $600. The thresholds for rental income reporting are $5,000 for 2024, $2,500 for 2025, and $600 from 2026 onwards.
To simplify rental income reporting, landlords can use rental accounting software like Landlord Studio. This software can automatically track rental income and expenses and generate reports to ensure compliance with tax reporting requirements.
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1099-NEC forms
The 1099-NEC form is used by landlords to report payments made to independent contractors. This could include property managers, repair people, plumbers, locksmiths, and other service providers. If these payments exceed $600, landlords are required to file a 1099-NEC form. This form is separate from the 1099-K form, which is used to report rental income.
Prior to 2021, landlords used Form 1099-MISC to report these types of payments. However, the IRS has clarified that landlords should use Form 1099-NEC for this purpose. This form is also relevant if landlords collect rent via cash or check. Additionally, landlords who receive rental payments via electronic payments processors that exceed a certain threshold must also report this income. For the 2024 tax year, this threshold is any payment over $5,000, which will be further reduced in subsequent years.
By filing Form 1099-NEC, landlords can help their rental activity qualify as a business for tax purposes, instead of an investment activity. This is important because it allows landlords to take advantage of the pass-through deduction, which can reduce their net business income by up to 20%.
It is important to note that the requirements for filing Form 1099-NEC may change over time, and landlords should stay up-to-date with the latest IRS regulations to ensure compliance. Failure to file the required forms can result in notices from the IRS, additional taxes, or even an audit.
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1099-MISC forms
Form 1099 is used to report income from self-employment earnings, interest, and dividends. The party making these payments is responsible for filing the 1099 form. Landlords who make specific payments must file 1099 forms. For example, if they hire an independent contractor and pay them more than $600 in a year, they must file a 1099-NEC form. A 1099-MISC form is relevant if landlords collect rent via cash or check. Other scenarios where a 1099 form may be required include owner disbursements to partners totalling over $600, payments of attorney fees, medical and healthcare payments, and reporting rent collected as cash or checks.
Before 2020, Form 1099-MISC was commonly used to report payments by a business to US-resident independent contractors. Form 1099-MISC must be issued if the total amount paid during the tax year is at least $600, though it may still be issued at lower amounts. Form 1099-MISC may also be used to report rental income, royalties, and Native American gaming profits. When payments are made through third-party networks, Form 1099-MISC is not required, and Form 1099-K will be filed by the payment service instead. Form 1099-MISC is also not required if the payee is a resident alien; Form 1042-S must be issued for nonresident payees. Form 1099-MISC is required for royalties of $10 or more. If the payer does not file Form 1099-MISC, there is a maximum penalty of $250 per form, up to $500,000 per year.
The American Rescue Plan of 2021 changed the requirements for filing a Form 1099. Previously, a Form 1099 only needed to be filed if the landlord made over $20,000 from more than 200 transactions for goods and services. The new rules set the threshold at any payment over $5,000 for 2024, $2,500 for 2025, and $600 from 2026 onwards. The IRS has introduced a phased approach for reporting these thresholds, and platforms may issue 1099-K forms for totals over $600 before the final mandate.
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1099-K forms
Form 1099 is used to report income from self-employment earnings, interest, and dividends. The party making these payments is responsible for filing the 1099 form. For landlords, this means that if you receive rental payments via an electronic payments processor, and they exceed $5,000 during the 2024 tax year, you should expect to receive a 1099-K form. The 1099-K form is one of several 1099 forms that landlords may encounter. It specifically relates to payments processed via third-party platforms.
The 1099-K form is issued by third-party payment platforms for payments made for goods or services, including rent. From 2024 onwards, these platforms must issue a 1099-K form for rental income exceeding $5,000 (phased down to $600 by 2026). This form is important for landlords to keep track of because, regardless of whether or not they receive a 1099-K form, they are legally required to report all rental income to the IRS.
The other two main 1099 forms that landlords may encounter are the 1099-MISC and the 1099-NEC forms. The 1099-MISC form is relevant if a landlord collects rent via cash or check. It is also used to report owner disbursements to partners totalling more than $600, payments of attorney fees, medical and healthcare payments made during the tax year, and reporting rent collected as cash or checks. The 1099-NEC form is used to report payments to independent contractors, such as property managers, repair people, and other service providers. Landlords should file this form if they pay an independent contractor more than $600 in a year.
The 1099-NEC form is also important for landlords to file if they want to help their rental activity qualify as a business for tax purposes, instead of an investment activity. This is because the IRS has stated that it might not be appropriate to treat a rental activity as a business if a landlord doesn't file all required Forms 1099-NEC. Additionally, filing the 1099-NEC form can help landlords qualify for important tax benefits, including the 20% pass-through deduction.
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Frequently asked questions
Form 1099 is used to report income from self-employment earnings, interest, and dividends.
Independent contractors, vendors, and some small businesses.
Starting in January 2022, for all transactions over $600.
It can help landlords qualify for important tax benefits, including the 20% pass-through deduction.
Failing to report all rental income can lead to penalties, interest, or even audits.
