Rental Property Owners subject to Form 1099 MISC reporting requirements

The 2010 Small Business Jobs Act signed by President Obama on September 27, 2010 expanded the scope of Form 1099 MISC reporting. As a result, for purposes of the information reporting requirements, a person receiving rental income from real estate is now considered to be engaged in a trade or business of renting property.

This means, beginning in 2011, persons who receive rental income from real estate (including individuals) are subject to the same information reporting requirements as taxpayers engaged in a trade or business and are required to report payments after 12/31/10 in excess of $600 on Form 1099s.

This will require businesses and individuals to obtain the required information including name, address and social security numbers from those who provide their services to the rental property owners most preferably on Form W-9.

In particular, rental income recipients making payments of $600 or more to a service provider (such as a plumber, landscaper, painter or accountant) in the course of earning rental income are required to provide an information return (typically Form 1099-MISC) to the IRS and to the service provider.

Exceptions to this reporting requirement are payments made for:
• Any individual, including any individual who is an active member of the uniformed services or an employee of the intelligence community [as defined in Sec. 121(d)(9)(C)(iv)], if substantially all rental income is derived from renting the principal residence (within the meaning of Sec. 121) of such individual on a temporary basis;
• Any individual who receives rental income of not more than the minimal amount, as determined under regulations prescribed by the Secretary; and
• Any other individual for whom the requirements would cause hardship, as determined under regulations prescribed by the Secretary.

Some Relief from Self Employment tax for Sch C filers

Generally, small business owners may not deduct the cost of health insurance when calculating self-employment tax. Under the Small Business Jobs Act, and subject to specific statutory limitations (i.e. deduction is not available if self-employed individual is eligible to participate in an employer-subsidized health plan maintained by the employer of the taxpayer or the taxpayer’s spouse), business owners can deduct the cost of health insurance for themselves and their family in the calculation of their 2010 self-employment tax.
This means atleast some saving for the Sch C filers in the self-employment tax they would owe!