For you rental property owners and businesses who were dreading the implementation of the new 1099 reporting requirements, you need not fret anymore. On Thursday, April 14, 2011, President Obama signed into law the Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011. This new law repeals parts of other new laws passed last year regarding the expanded 1099 reporting requirements that were to start January 1, 2011 and January 1, 2012.
As part of last year’s Small Business Jobs Act, starting January 1, 2011, record keeping for rental property owners was to become a little more complicated. As a rental property owner in 2011, you were supposed to keep records of all payments to painters, plumbers, accountants, handymen and any other individuals or partnerships who did any work for you with regard to your rental properties. If those payments exceeded $600 in 2011, then in early 2012 you were going to have to file a 1099 with both the IRS and the service provider.
The provision in the 2010 Small Business Jobs Act that made rental property owners subject to the 1099 reporting requirements has been repealed by last week’s passage of the new act. The result is for 2011, you as a rental property owner do not have to report payments in excess of $600 in a year for services provided by individuals or partnerships for the benefit of your rentals. No more 1099 reporting requirements for rental property owners for payments made in 2011. Yeah!
But there’s more! Starting January 1, 2012, there was a second set of new reporting requirements that were supposed to apply to ALL businesses, including rental property owners. In 2010, the Patient Protection and Affordable Care Act, affectionately known as Obamacare, had provided you with this little gift. These expanded reporting requirements were enacted to help pay for the health care benefits of Obamacare. Under these new rules, practically all business transactions in 2012 and thereafter would have required 1099 reporting.
You as a business or rental property owner were going to have to report all payments to anyone in excess of $600 in a year to the IRS. It would not have mattered if the payments were for services, office supplies, gasoline or even restaurant meals. And it covered payments to anyone, including corporations, not just individuals and partnerships.
The good news is that last week’s new law also repealed these expanded reporting requirements. There is no longer a requirement that you have to report payments in excess of $600 for goods or other property, just services. Corporations are again excluded from the list of reportable persons to whom you have made payments. And the reporting rules no longer apply to rental property owners, just other business owners.
The net result of all of this is, for 1099 reporting purposes the rules are basically the same as they were before the Small Business Jobs Act and Patient Protection and Affordable Care Act:
No 1099 reporting required for rental property owners for any payments made to anyone in 2011, 2012 or anytime thereafter.
Other businesses must report payments made in excess of $600 in a calendar year to individuals or partnerships for services rendered.
The increased penalties of the Small Business Jobs Act for not properly reporting these 1099 payments were not repealed by last week’s new law. If you have a business other than a rental real estate and you do not properly report these payments, you may be subject to increased penalties totaling up to $1.5 million.
There were a number of business groups who called on Congress for the repeal of expanded 1099 reporting requirements. However, if you are a rental property owner, you should be especially thankful to the American Institute of Certified Public Accountants (“AICPA”). In its recent newsletter to members, the AICPA stated:
“The AICPA had advocated strongly for repeal of both provisions and as one of the only organizations advocating against the rental property requirement was a driving force in its repeal. When the Senate passed the bill on April 5 and sent it to President Obama for his signature, AICPA President and CEO Barry Melancon described the repeal as a “victory for taxpayers.”
And a victory it is for small business owners.
By: Matthew M. Wallace, CPA, JD
Published edited April 24, 2011 in The Times Herald newspaper, Port Huron, Michigan as: Rental property owners catch a break