There is so much more that goes into managing a property than collecting rent payments from tenants. There is a certain amount of organization needed to successfully collect rent, pay taxes, and record any other payments related to the property that must be reported to the IRS.
Navigating this can be difficult, and with updates to the IRS 1099 Form 2023 requirements for the upcoming 2024 tax season, now is the time to get caught up. Incorrectly reporting payments related to a rental property can lead to potential IRS penalties.
Under the American Rescue Plan, the thresholds for the amounts reported on a 1099-K have been lowered. As you’ll find in this article, this will impact property managers who collect rent payments using an online platform like Paypal, Venmo, etc.
Keep reading for an overview of what forms landlords are required to file with the IRS as well as their requirements for tax year 2023!
First and foremost, let’s take a closer look at the 1099 Forms. As a landlord, you will need at least one of these to properly report any relevant rental payments to the IRS. In the most general terms, the 1099 series consists of a variety of forms that are used to report different kinds of income that didn’t come from an employer. This includes passive income, such as rent payments.
The biggest concern that landlords face is which 1099 they are required to file and under what circumstances. Here is a quick overview of each of these 1099s, as well as examples of when they are needed:
The Form 1099-MISC is specifically designed for miscellaneous payments, including rents, rewards, etc. Landlords that are collecting more than $600 per year from a tenant that is a business will receive a 1099-MISC.
A business with an EIN, Barbara’s Bakery, rents a storefront from the owner of the property, Robert, and they sign a lease agreeing to pay $2,000 per month in rent. If the business is making the rent payment by cash or check, they will most likely need to file 1099-MISC at the end of the year to report the payments and provide Robert with a copy. Robert will use the payment information on the 1099 to report this income on his personal tax return.
Many questions are centered around Form 1099-K because effective in 2024 (for tax year 2023 reporting) the requirements are changing pretty drastically. In previous tax years, third-party payment settlement entities were only required to file 1099-K to report more than 200 transactions per year, with an aggregate amount exceeding $20,000.
Now, however, ALL payments totaling $600 or more must be reported. So – what is the impact on landlords? If the landlord collected rent payments of more than $600 using a payment processor such as Venmo, PayPal, Stripe, etc., they will receive a 1099-K.
In addition to the storefront, Robert owns three more rental properties. If all of these tenants are making their rent payments electronically using a processor such as Venmo, Robert will receive a 1099-K from Venmo that details the amount of payments he collected.
This is an extremely common, and important 1099 form. This is used to report non-employee compensation to the IRS. If you hire an independent contractor and pay them $600 or more for their services, a Form 1099-NEC is required.
While Barbara’s Bakery is leasing the storefront from Robert, there is an issue with leaking pipes. Because Robert is the property owner he is responsible for fixing this plumbing issue so that Barbara can conduct her business. Robert decides to contract a plumber to fix the issue and ends up paying Joe’s Plumbing LLC a total of $1,200 to fix the pipes. Robert will need to file 1099-NEC at the end of the year to report the amount to the IRS. He also needs to furnish Joe’s Plumbing LLC with a copy.
Federal, state, and local taxes withheld from the payment
Collecting 1099 Information
How can tenants, property management companies, and landlords all ensure that they collect the correct information before it’s time for year-end 1099 filing? The simplest option is using Form W-9. This is an IRS form designed to help businesses collect tax information from the other businesses and vendors that they work with and make payments to.
How to get a w9 from landlord?
As a private residential landlord, you are not required by law to provide a W-9 form to your tenant. The W-9 form is typically used by businesses to request the taxpayer identification number of individuals or entities they are paying for services.
Form W-9 collects the vendor’s TIN, legal name, and address, and requires them to sign the form certifying that the information is accurate to the best of their knowledge. For more information about Form W-9 and the benefits of online vendor management, check out this blog post.
Conclusion: Who Needs to File What?
Overall, it would benefit tenants (if they are leasing commercial space or residential space as a business), property managers, and landlords to request W-9 so that they have the crucial tax information needed to file 1099.
While there are exceptions to nearly all of these, this is an overview of the most common reasons a landlord, property manager, or tenant (if it’s a business) would file or receive a 1099. Remember, when in doubt, always consult a tax professional!
Landlords: Will receive a 1099-K if they collected Form 1099 through a payment processor or 1099-MISC if they collected payments via cash or check. If they hire any outside 1099 contractors for maintenance or other services related to the rental property they should file a 1099-NEC to report payments over $600. Landlords that use property management software to collect rental payments will likely receive a 1099-K from that software company.
Tenants: If they made traditional cash or check payments to the landlord they should most likely file a 1099-MISC reporting the payments to the IRS and furnish the landlord with a copy.
Property Managers: Property managers who are handling rental payments and hiring any contractors for maintenance on the landlord’s behalf are responsible for filing 1099s accordingly and furnishing the landlord with a copy. Corporations that manage properties are taxed differently, so these rules don’t necessarily apply.
TaxBandits Powers Simple 1099 E-filing Solutions
With TaxBandits meeting the IRS 1099 filing requirements is easier than ever before. The e-filing process is streamlined to increase filing accuracy and efficiency, with solutions for businesses and tax professionals of every size. Take advantage of these advanced features when you e-file 1099 forms.
A W-9 Manager that allows you to request, collect, and store valuable tax information from each vendor.
Federal and State filing for 1099 forms
Integration with accounting software to streamline your 1099 filing (Xero, QuickBooks, Sage Intacct, ZohoBooks, and FreshBooks).
Built-in error checks using the IRS Business Rules
Recipient copy distribution via postal mail or secure online access (E-delivery).
Automate your 1099 Process with TaxBandits API!
If you are a software provider, TaxBandits offers an API solution that allows you to integrate and enable 1099 automation from your existing software. Our API streamlines every aspect of the 1099 filing process, starting from W-9 collection all the way to generating and e-filing forms with the IRS & state(s) and distributing recipient copies.
Ready to get started with TaxBandits and revolutionize the way you maintain IRS tax compliance?