Rental Home Owners Face New Tax Reporting Burdens

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Submitted by SD Transplant on January 17, 2011 - 7:46am

A little piece of legislation like this could make life pretty misserable for a lot of RE investors that rent:

Source: http://www.therealestatebloggers.com/hou...

If you own rental homes the federal government has made your world a bit more complicated in 2011. Buried in the Small Business Lending Fund Act that passed in 2010 there was a new provision for rental home owners. Now every time you work with a contractor that charges you over $600 you will have to 1099 them.

According to the bill’s proposed new rules on rental property, owners who pay $600 or more for a service such as plumbing, landscaping or painting, would be required to issue 1099 forms to the IRS and whoever provided the work.

“Under the provision, recipients of rental income from real estate generally are subject to the same information reporting requirements as taxpayers engaged in a trade or business,” the JCT reported.

The new rental reporting requirements would go into effect on Dec. 31 this year and would likely affect millions of property owners, say taxpayer advocates.

“You’ve got to be kidding me,” said Tom Schatz, president of the watchdog group Citizens Against Government Waste, when told about the provision. “Honestly, it’s an outrageous burden for rental owners.” via Washington Examiner

And you think that you will ignore giving Washington more information on your business? Think again, if you are caught not 1099′ing your contractors you could face fines up to $250,000 for failing to get the required information.

My advice, which really does annoy me, is to get the 1099 form filled out by every vendor you work with for your rental properties. The cost of non compliance is too high, and as a group you are being targeted by the Federal bureaucracy.

Oh, and you heard on the radio or TV that the government is going to repeal onerous reporting requirements for small businesses? You are right on that one, but as a rental property owner, you are not included in that group. Your new tax reporting requirement was buried in a different bill.

Submitted by DataAgent on January 17, 2011 - 8:33am.

Business owners like myself have been required to issue 1099s for years. Renting property for a profit is a business. Why should rental property owners be exempt from issuing 1099s?

Submitted by LarryTheRenter on January 17, 2011 - 12:00pm.

Is issuing a 1099 something you can do yourself with a simple form or does it require getting (and paying) an accountant to do it for you???? thanks

Submitted by SK in CV on January 17, 2011 - 1:16pm.

LarryTheRenter wrote:
Is issuing a 1099 something you can do yourself with a simple form or does it require getting (and paying) an accountant to do it for you???? thanks

You can do it yourself, by hand would be a pain in the ass if you don't know what you're doing. If you do know what you're doing, its gonna take maybe 1/2 hour for a few 1099's. I just looked for low cost services online and Intuit will prepare all the forms for you for $39, $25 if done before Jan 23.

Submitted by SD Realtor on January 17, 2011 - 9:33pm.

It is not hard to do but it is a pain in the ass. It hurts the providers for the service alot more then the landlords. Lots of handymen type and other guys who do an honest days work will now be 1099'd for alot more of the work they used to not declare.

So good thing our govt is there to track them down and squeeze every cent out of them.

Submitted by Effective Demand on January 17, 2011 - 9:51pm.

SD Realtor wrote:
It is not hard to do but it is a pain in the ass. It hurts the providers for the service alot more then the landlords. Lots of handymen type and other guys who do an honest days work will now be 1099'd for alot more of the work they used to not declare.

So good thing our govt is there to track them down and squeeze every cent out of them.

Curious, What makes handymen so special that they get to cheat on their taxes and not be criminals?

I do an honest days work too, can I cheat on my taxes?

Submitted by UCGal on January 18, 2011 - 9:17am.

SD Realtor wrote:
It is not hard to do but it is a pain in the ass. It hurts the providers for the service alot more then the landlords. Lots of handymen type and other guys who do an honest days work will now be 1099'd for alot more of the work they used to not declare.

This was my first thought too - it's a way of forcing off the books/undeclared income on the books/declared. It will hit the contractors more than the investment property owner.

Submitted by SD Realtor on January 18, 2011 - 3:40pm.

Nothing makes them more special effective demand. The truth of the matter is that I don't really care. The other truth is that for the handyman making 30k a year, that 900 buck job that he may or may not have reported income on is more important to him then to me. The bottom line is that this policy will probably hurt many lower wage earners then the wealthier people that employ them. Again, I don't really care one way or another, but I know alot of people in those shoes and they are pretty unhappy about it.

Submitted by Effective Demand on January 18, 2011 - 5:46pm.

SD Realtor wrote:
Nothing makes them more special effective demand. The truth of the matter is that I don't really care. The other truth is that for the handyman making 30k a year, that 900 buck job that he may or may not have reported income on is more important to him then to me. The bottom line is that this policy will probably hurt many lower wage earners then the wealthier people that employ them. Again, I don't really care one way or another, but I know alot of people in those shoes and they are pretty unhappy about it.

This will only hurt those being dishonest and not reporting income. Suprisingly, I'm ok with that.

Submitted by Hobie on January 18, 2011 - 6:34pm.

It is not limited to just business it applies to everyones purchases over $600.

http://www.accountingweb.com/topic/tax/c...

My take is that is the groundwork for taxing all internet purchases.

Suppose you buy a new TV online from New York. No sales tax. But you are supposed to pay use tax at the same rate of the sales tax. Only businesses who declare the asset pay this tax.

1099 Part 2. My understanding of a 1099 is technically the employer is on the hook to pay social security withholding. The issuance of the 1099 tracks who received the income or sales payment and who should pay the required estimated withholding. Now if the guy you 1099'd flakes out and skips without paying, I believe the IRS can come after you for the money. Maybe SK can chime in here.

So with this new use of the 1099 the IRS can track who received this new TV and by sharing data with the states can determine if the use tax was collected. Possibly deducting it from any Fed funds owed to the state.

Something to think about. Thoughts?

Submitted by jpinpb on January 18, 2011 - 7:15pm.

Hobie wrote:
It is not limited to just business it applies to everyones purchases over $600. .....

Something to think about. Thoughts?

This is crazy. Say you travel for business. Yearly, you might have air travel or gasoline that exceeds $600. Are you supposed to send a 1099 to American Airlines and Chevron?

That's unduly burdensome.

Submitted by SK in CV on January 18, 2011 - 7:20pm.

Hobie wrote:
It is not limited to just business it applies to everyones purchases over $600.

http://www.accountingweb.com/topic/tax/c...

My take is that is the groundwork for taxing all internet purchases.

Suppose you buy a new TV online from New York. No sales tax. But you are supposed to pay use tax at the same rate of the sales tax. Only businesses who declare the asset pay this tax.

1099 Part 2. My understanding of a 1099 is technically the employer is on the hook to pay social security withholding. The issuance of the 1099 tracks who received the income or sales payment and who should pay the required estimated withholding. Now if the guy you 1099'd flakes out and skips without paying, I believe the IRS can come after you for the money. Maybe SK can chime in here.

So with this new use of the 1099 the IRS can track who received this new TV and by sharing data with the states can determine if the use tax was collected. Possibly deducting it from any Fed funds owed to the state.

Something to think about. Thoughts?

The 1099 portion of the health care law was one of the things that Obama specifically identified as something he'd be glad to repeal. It was one of the items added to increase revenue. It only applies to businesses, not individuals. And I suspect it may be repealed. It's a waste of time, I don't think the data will ever be used. On the other hand, I don't think it is all that big a deal for most businesses to comply. Most have the required information readily available, or can acquire it pretty quickly. A little bit of a pain for very small businesses, but an extra hour a year to comply is barely worth bitching about.

I don't think it has anything to do with use taxes specifically. That said, CA has significantly stepped up attempting to collect use taxes from businesses over the last couple years, sending letters to virtually all CA businesses that aren't normally subject to filing sales tax returns. There is some limited sharing of info between the IRS and the states. Whether states will actually exploit that info is another thing.

Payers are not on the hook for any SS taxes. SS taxes are paid for and by employees. Independent contractors are, by definition, NOT employees. (there is an exception here, when employers attempt to improperly treat employees as independent contractors. Simply issuing 1099s doesn't get employers off the hook if payees should have been employees to begin with.)

Submitted by SK in CV on January 18, 2011 - 7:22pm.

jpinpb wrote:

This is crazy. Say you travel for business. Yearly, you might have air travel or gasoline that exceeds $600. Are you supposed to send a 1099 to American Airlines and Chevron?

That's unduly burdensome.

Yeah it would be unduly burdensome. Fortunately there is nothing in the law that would require it.

Submitted by Hobie on January 18, 2011 - 7:54pm.

I know I colluded Social Security with use tax but it was to show how sales/income can be tracked.

SK in CV wrote:

Payers are not on the hook for any SS taxes.

How does it work say if I 1099 a firm in the amount of several hundred thousand dollars. Now suppose they skip out and don't pay. And there is an audit. Are you saying the IRS will not knock on my door asking for at least the employer half?

Or, put a different way say if I use a fly by night company and 1099 them and later it was determined they gave me a bogus TIN or SS number and disappear. Don't I still owe the IRS if they can't collect from them?

Submitted by SK in CV on January 18, 2011 - 8:05pm.

Hobie wrote:
I know I colluded Social Security with use tax but it was to show how sales/income can be tracked.

SK in CV wrote:

Payers are not on the hook for any SS taxes.

How does it work say if I 1099 a firm in the amount of several hundred thousand dollars. Now suppose they skip out and don't pay. And there is an audit. Are you saying the IRS will not knock on my door asking for at least the employer half?

Or, put a different way say if I use a fly by night company and 1099 them and later it was determined they gave me a bogus TIN or SS number and disappear. Don't I still owe the IRS if they can't collect from them?

There is no "employer half" for non-employees. There is no employer/employee relationship in either of those examples. You won't owe anything.

Submitted by Hobie on January 18, 2011 - 8:28pm.

I understand the no employer relationship but there is no recourse by the IRS? Just by producing a bogus 1099??

Even as a smaller government is better guy, I don't agree that the IRS should be shorted in this manner.

Submitted by SK in CV on January 18, 2011 - 9:54pm.

Hobie wrote:
I understand the no employer relationship but there is no recourse by the IRS? Just by producing a bogus 1099??

Even as a smaller government is better guy, I don't agree that the IRS should be shorted in this manner.

Ain't this a role reversal. Ok, lets say I have an apartment building. I pay a pool service, a gardner, a painter, a carpet installer, and an attorney to file a few unlawful detainers every year. They all supply me with their SS number or EIN and I file 1099's every year. I assume the information they give me is valid. All my responsibilities have been fulfilled.

Do the pool guy and the gardner and the painter, etc. all report all of their income? I have no idea. I know the pool guy and the gardner have residential accounts that don't file 1099's. The attorney does some DUI's too, and I know he doesn't get 1099's for them. But they're supposed to report all that income anyway.

Tax enforcement is tough. Either the IRS is given tools by congress which range from slightly burdensome to unreasonable for small and big businesses alike, or they don't collect the taxes they're charged with collecting. I don't think there is a simple solution.

Submitted by Coronita on January 19, 2011 - 7:38am.

Well golly, I guess when you need a handyman, the solution to all this complexity imposed by new rules is just... hire a bunch of illegal aliens...... then you don't need to be worrying about reporting income, because you know that they won't be!

(end sarcasm)

Lol......

Submitted by Coronita on January 19, 2011 - 7:41am.

Imitating South Park, the Movie (when they asked what would Bryan Boitano do?)

hmmm.. What would Robert Kiyosaki do?

Submitted by SD Realtor on January 19, 2011 - 8:23am.

pri_dk I am not making an argument for anything. I am in favor of a smimple flat tax and I am in favor of a much reduced role of govt.

I believe that this particular party in power received a great deal of support based on helping those with lower incomes and who were less fortunate.

Submitted by SD Realtor on January 19, 2011 - 9:33am.

Ummm....

Can you point to my post that said it is ok for the little guy to pay no taxes at all?

Dont really think I said that. I think I said paying taxes on the 900 hurts him.

I don't think that means I said it is okay for him not to pay his taxes.

************

Gosh those wealthy people sure are evil aren't they? Not sure what they did to deserve your ire.

Also I am not so sure that some huge deficit would be created if they paid less but the tens of millions of people who pay nothing now had to pay some taxes. In short I don't buy your claim.

Also we do need MASSIVE spending cuts no matter what.

***********

As far as what those cuts should be? Not sure, but they will hurt all of us pr.

Cant spend what you don't have. We have been doing that far to long.

Submitted by UCGal on January 19, 2011 - 3:19pm.

pri_dk wrote:

A flat tax rate isn't simple. It's simple-minded. A platitude that almost no one understands.

I agree with this.
I hear a lot of people argue for and against a flat tax without stopping to consider how it works.

A true flat tax means No Deductions. No mortgage interest rate deductions, no deductions for kids, childcare, etc. No deductions. No sheltering earnings by contributing to a 401k. FLAT tax means that you pay tax on every dollar of income. No more adjusted gross...

This is pretty straight forward for wage earners. Less so for corporations and self employed.

Is it net income? - what constitutes an expense? Do you allow businesses to deduct expenses when you do not allow individuals to make deductions? Is that fair? Do you allow depreciation of assets? How do you write off inventory?

It sounds simple but the reality is that there are teams of lobbyists ready to go to battle to protect their specific deduction.

Now if you're talking about a marginal flat tax - that allows deductions - and we're back in the same mess we have now. Just a variation of it. Who decides what deductions apply? How does it work with corporations?

Or we could go with a consumption flat tax - a VAT. That's what Forbes proposed. That would just push entire sections of the economy under the table. (As it is in Europe.)

Flat tax sounds good until you look at how it would actually work.

Submitted by SD Realtor on January 19, 2011 - 5:29pm.

pr I did some research and now do agree that a flat tax will not provide a matching revenue that the current progressive tax supplies. I am also not in the camp of a VAT or fair tax so with that said, I do agree with you that the progressive tax rate is the most beneficial methodology to date.

With that said I also believe we need to cut spending pretty substantially.

Submitted by Raybyrnes on January 19, 2011 - 6:00pm.

Safe Harbor I have not fully investigated this but worth a read.

Will you ever sell your house?

Did you know that if you sell your house after 2012 you will pay a 3.8% sales tax on it?
That's $3,800 on a $100,000 home etc.
When did this happen? It's in the health care bill. Just thought you should know.
SALES TAX TO GO INTO EFFECT 2013 (Part of HC Bill) Why 2013? Could it be to come to light AFTER the 2012 elections?
REAL ESTATE SALES TAX
So, this is "change you can believe in"?
Under the new health care bill - did you know that all real estate transactions will be subject to a 3.8% Sales Tax? The bulk of these new taxes don't kick in until 2013 If you sell your $400,000 home, there will be a $15,200 tax. This bill is set to screw the retiring generation who often downsize their homes. Does this stuff make your November and 2012 vote more important?
Oh, you weren't aware this was in the obamacare bill? Guess what, you aren't alone. There are more than a few members of Congress that aren't aware of it either
http://www.gop.gov/blog/10/04/08/obamaca...

Submitted by Eugene on January 19, 2011 - 6:03pm.

SK in CV wrote:

You can do it yourself, by hand would be a pain in the ass if you don't know what you're doing. If you do know what you're doing, its gonna take maybe 1/2 hour for a few 1099's. I just looked for low cost services online and Intuit will prepare all the forms for you for $39, $25 if done before Jan 23.

Presumably, if you're a business owner, you have a piece of computer software that tracks all your expenses, because $600 paid out to a handyman is $600 that you can deduct from your net income, and that lowers your tax bill, potentially by up to $200. So it's a simple matter of adding a new feature to that software, to make it print a stack of 1099's when you do a tax return.

Submitted by Eugene on January 19, 2011 - 6:07pm.

Raybyrnes wrote:
Safe Harbor I have not fully investigated this but worth a read.

Will you ever sell your house?

Did you know that if you sell your house after 2012 you will pay a 3.8% sales tax on it?
That's $3,800 on a $100,000 home etc.

Almost totally incorrect.

Only if your HH income is over $200,000 ($250,000 if married filing jointly), and only on the portion of capital gains that exceeds $250,000 ($500,000 if filing jointly), and certainly not on the total sales price.

Submitted by SK in CV on January 19, 2011 - 6:30pm.

Eugene wrote:
SK in CV wrote:

You can do it yourself, by hand would be a pain in the ass if you don't know what you're doing. If you do know what you're doing, its gonna take maybe 1/2 hour for a few 1099's. I just looked for low cost services online and Intuit will prepare all the forms for you for $39, $25 if done before Jan 23.

Presumably, if you're a business owner, you have a piece of computer software that tracks all your expenses, because $600 paid out to a handyman is $600 that you can deduct from your net income, and that lowers your tax bill, potentially by up to $200. So it's a simple matter of adding a new feature to that software, to make it print a stack of 1099's when you do a tax return.

That's all well and good for a business, even a small business. But this post was in reference to someone who owns a rental home. Maybe they use quicken or something like that to track their expenses, and even if they don't, usually figuring out who you paid $600 to isn't all that difficult.

But actually getting the damn things printed? Quicken doesn't do it. (Quickbooks does, I think, but if you own a single rental house, QB is overkill and not worth the money.) Eh, not quite as easy as clicking on print. I have software that costs a couple hundred bucks. (does a whole bunch of other shit too.) Carries all the info over from one year to the next. Takes me 10 minutes to do about 10 of them. Someone who has never done it? 30 minutes. Easiest way, pay $40 to a service to do it for you. Or do it early and it's only $25.

(And you can't wait until you do your tax return. 1099's are due to recipients by 1/31, to the IRS by 2/28)

Submitted by waiting hawk on January 19, 2011 - 6:53pm.

Im glad I use my cabin as a vacation tax write off. I cant expense maintenance (didnt have any this year anyways) I can only write off my taxes/interest as long as I dont use it more than 15 days and rent it 15 days. Shoot I easily qualify for that not even lying on my taxes lol. Renting homes is a hassle.

Submitted by Eugene on January 19, 2011 - 6:57pm.

SK in CV wrote:

That's all well and good for a business, even a small business. But this post was in reference to someone who owns a rental home. Maybe they use quicken or something like that to track their expenses, and even if they don't, usually figuring out who you paid $600 to isn't all that difficult.

Even if you're not a "real business" and you only own a rental home, you're still going to track and deduct all expenses.

Quote:
But actually getting the damn things printed? Quicken doesn't do it.

TurboTax web site says that it can import data from Quicken and file 1099-MISC forms, even in the basic version (though that sounds a little hard to believe).

Submitted by no_such_reality on January 19, 2011 - 7:16pm.

SD Realtor wrote:
It is not hard to do but it is a pain in the ass. It hurts the providers for the service alot more then the landlords. Lots of handymen type and other guys who do an honest days work will now be 1099'd for alot more of the work they used to not declare.

So good thing our govt is there to track them down and squeeze every cent out of them.

Um, good.

No, seriously. I pay too much in taxes, I pay what I owe according to code. I have to pay taxes for my nanny. As for as everybody working cash AFAIC, they should pay their taxes and pay a penalty for cheating.

Yes, face it, not declaring was cheating the taxes.

Submitted by CA renter on January 20, 2011 - 1:07am.

SD Realtor wrote:
pr I did some research and now do agree that a flat tax will not provide a matching revenue that the current progressive tax supplies. I am also not in the camp of a VAT or fair tax so with that said, I do agree with you that the progressive tax rate is the most beneficial methodology to date.

With that said I also believe we need to cut spending pretty substantially.

SDR,

That was an awesome post. You took the information, did your own research, and changed your position, rather than sticking to your position as many other people (most?) would have done when confronted with information that doesn't agree with their beliefs. Very impressive. :)

Although I don't need to convince you of anything, one other very major argument in opposition to a flat tax is that it would create an even greater wealth disparity in this country. While some appear to be fine with that, I can't think of a single country with such a large wealth gap that didn't suffer some major negative consequences as a result. A flat tax is very regressive.

Realize that the people who would most benefit from a flat tax are those in the top 1%, and they are the ones trying to get the message out there that a flat tax would somehow benefit our economy. It wouldn't.

As to the reductions in spending, I personally believe we could reduce spending rather drastically without really affecting most people's quality of life. There is a LOT of corruption in government, with so many backroom deals being made on a daily basis. Billions are being wasted every year (trillions, if you include the financial industry), and the average citizen is not seeing any benefits as a result of this spending. If you eliminate the corruption in government, you could probably cut 10-15% (at least) from our budget, IMHO.

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