Hi, i have a rental house and the property manager i use withholds their fees from the rent, which totals more than $600 per year. They send me a 1099 each year for the rent they pay me. My question is do i also need to send them a 1099 for the fees they've withheld? Thanks!
If they are not a corporation, and if the annual amount is upwards of $600, then the answer is "it depends".
As an owner of a single rental property who presumably gets most income from other sources, traditionally you would not be considered to be in a "trade or business", therefore not required to issue 1099-MISC.
On the other hand, I've read arguments based on interpretation of the code that yes, a landlord is considered a trade/business and therefore would be required to issue 1099-MISC. Your Schedule E asks you that very question (are you required to issue?), so answer it honestly. ;-)
It's certainly safest to issue the 1099-MISC, just ask them for a W-9 form before making any more payments. There are vendors listed at the IRS web site who will e-file this form for you for a fee (around $10 or $20 I think depending on quantity, etc -- shop around). Or there is the old fashioned way on IRS printed paper forms.
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OP doesn't make any payments, the manager collects the rents and withholds their fees.
Seth
So are you trying to say that it is the tenant who pays for service from the prop manager, not the landlord? Or that in fact no one is paying the prop manager? I don't agree.
The payments are made out to OP, and the manager collects the money as OP's agent. So from a legal standpoint OP collects the rents.
When a corporation receives a check from a customer, would you require the person in the mail room to put it on his tax return?
___ Stu
PL 111-240 signed 9/27/10, the Small Business Jobs Act Section 2101 created the requirement for the owners of rental property to file the
1099-MISC. There was such an uproar, that PL 112-09 signed 4/4/11 repealed it.See the CCH briefing on the repeal:
you are correct, but I think the OP was replying to "just ask them for a W-9 form before making any more payments". Since the LL is not making a payment (agent is deducting directly from rent payments), he has lost that leverage to obtain a W-9.
"Stuart A. Bronstein" wrote in news:XnsA12E44DA146EDspamtraplexregiacom@130.133.4.11:
Don't know the answer, but at least in my experience the payments are made to the manager's dba name. ISTM that CFR 26 1.6041-1 (e) says third-party payments only have 1099 reporting requirement if the payment is in the course of third-party's trade or business. Since being a residential tenant is not a trade or business, no reporting requirement.
Any experts agree with my thinking? (I am in the same position as OP with the added wrinkle that my wife is a real estate professional.)
scott s. ..
I thought of that after I posted my response. I assumed that the prop management company would have to stop collecting rent and withholding fees if so instructed by the landlord, such that there was indeed still leverage of some kind.
With any reputable firm, there should be no question that they would provide a W-9 when asked, so that particular aspect of the question is not an issue IMO.
Right, but we are still stuck with the previously existing gray area as to when a landlord rises to the level of a trade/business. I've seen exhaustive discussions of this in other forums (and probably here too, but too lazy to search right now), including various interpretations of IRC.
To quote from your CCH link above:
"Further, landlords with activities that amount to a trade or business continue to be required to report payments of $600 or more to service providers."
The question is, when is the trade/business threshold reached? Especially since "trade or business" has never really be defined in the IRC. Is it ten properties? Three? One?
I understand that. However, the whole purpose of amending Sec. 6041 of the IRC back in 2010 was to close the tax gap. Congress added paragraph h that said for purposes of filing a 1099 a person receiving rental income will be considered to be engaged in a trade or business. This certainly would lead one to conclude that prior to the 2010 Act, one who merely rented property (no services were offered that would give rise to operating a business) did not have a reporting requirement under Sec.
6041. After the revolt, Congress repealed that section. I think it is reasonable to assume that by repealing that section, Congress was removing the requirement for reporting on a 1099.Therefore, I must conclude that one who merely rents property is not considered to be running a trade or business for purposes of Section
6041. Whether or not your rental(s) is a trade or business will depend upon whether other significant services are being offered that would move the income and expense from Schedule E to Schedule C.
It's clearly the tenant who is paying. The property manager is not paid directly by the owner, but rather collects the rent and keeps some of it. (If the house were vacant for a few months and the owner wrote checks to the property manager, then the owner would be paying the property manager.)
Seth
I didn't see that specified. I know that I've written rent checks payable to the managing agent, not the owner (and others to the owner).
If it's made out to him or he can deposit it and control the money, then yes.
Seth
For what? Rent, or service from the management company? (Actually, some management companies provide an option for the renter to pay some or all of the management fee, but it is a separate debit or charge directly to the renter).
The property manager is not
It's reasonable to expect that gross rent monies collected are placed in a trust account for the benefit of the owner. Some states require this by law.
Money held in trust for the owner by a rental property management company is not subject to independent control by the rental property management company. Various state laws determine the trust account requirement.
The property manager is being paid by the property owner. This is true whether the owner writes a check to the manager or not. The open question is whether the property owner is required to file a 1099 for the payments (in this case, the payments are the amounts the property manager/agent did not remit to the owner/principal) made to the property manager.
Schedule E does not ask whether you fall within a category of activity that requires you to issue 1099's if appropriate, it asks "Did you make any payments [in tax year] that would require you to file form(s) 1099". So, it blends the two issues: 1) does your activity require you to issue 1099s if appropriate, and 2) were there any such appropriate transactions.
In addition, see the new instructions (2012) for filing 1099-msc. It has this statement:
Repeal of reporting requirements for certain rental property expenses. The requirement described in the 2011 instructions for persons receiving rental income from real estate to report payments for certain rental property expenses on Form
1099-MISC was repealed by Congress. You do not have to report those payments on Form 1099-MISC.BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.