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Filing a 1099 Form for Rental Income

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Filing a 1099 Form for Rental Income

The job title landlord, along with the opportunity to generate passive income, comes with more responsibility than people realize. As a landlord, it's up to you to manage tenants, taxes and navigate the different tax rules. If you're a property management company, landlord or tenant, you may be unclear about the Form 1099 requirements when it comes to rent, including who receives one and how to send one. Let's answer those pressing questions about 1099 for rental payments.

Key takeaways

  • There's a distinction between a rental home and rental property, and this impacts taxes
  • 1099 deductions can help landlords save on taxes
  • Some rental relief income needs to be included as gross income depending on whether you're a landlord or tenant

Table of contents

What is Form 1099?...Read more

Who receives a 1099?...Read more

The government and rental income...Read more

Landlords and taxes...Read more

The 10% or 14-day rule...Read more

The 1099-MISC form...Read more

Do I need to send a 1099 for rent paid by tenants?...Read more

Rental property deductions...Read more

Is rental relief taxable?...Read more

What is Form 1099?

The 1099 form is like a record that shows income from every business or client that paid you during the year. One form gets sent to you and one is sent to the IRS. The form helps keep track of your total income for the year. Independent contractors, freelancers, and anyone in the gig economy will most likely receive a copy of this form. You'll probably only use a few of the many different types of 1099 tax forms out there, but it's important to know the differences between them.
Image displaying the most common 1099 tax forms including 1099-MISC, 1099-INT, 1099-S, 1099-K, and 1099-C for self-employed, freelancers, and taxes.
1099 tax forms usually arrive in your mailbox or by email by mid-February. Receiving a 1099 tax form doesn't automatically mean you need to pay taxes on all of that income because tax deductions can significantly lower the amount of income you will be taxed on. Since 1099s are the way the IRS records your income for tax purposes, there can be hefty consequences if your income is not reported on a 1099.

Who receives a 1099?

On the 1099 form, the payee is anyone who has been paid for services such as:
  • Renovations
  • Remodeling
  • Attorney services
  • Plumbing
  • Electrical work
  • Pest control
  • Landscaping
  • Housecleaning
If you've paid an independent contractor or freelancer $600 or more for their services, you need to send them and the IRS a 1099 form reporting those payments
Image with text explaining when landlords and businesses don't need to file a 1099 form for taxes, including exceptions for corporations and LLCs. #taxes #1099 #landlords

The government and rental income

The Internal Revenue Service (IRS) classifies receiving rental income as conducting a trade or business, and you'll be taxed at the normal income tax rate. Not everyone makes a profit on their rental income, and you might end the year with a loss. Unlike Apple or Tesla stock losses, you can't offset rental income losses. But you can use your loss to lower your taxable income, if you're an active participant in supervising the rental activities, you can write off up to $25,000 in losses. To qualify as an active participant, you need to own at least 10% of the property and be actively involved in management decisions, like setting rental rates, approving repairs or upgrades and approving tenants. Don't worry, you can still hire a property manager to handle other management-related tasks and claim a passive income rental loss. Let's say you own a rental property in Vail, and you have a modified adjusted gross income (MAGI) of $90,000 from the property. But this year was tough, and you spent $120,000 on the property, leaving you with a $30,000 loss. You can deduct the $30,000 to bring your taxable income down to $60,000.

Landlords and taxes

The IRS considers rental income to be passive income on an investment, so they're not required to pay self-employment, or SECA, taxes. This is not to be confused with a full-time house flipper who classifies themselves as a real estate agent. They need to pay self-employment taxes since they’re buying and selling property for resale purposes. The same goes for if you provide an additional paid service to your residents, like dog walking, bicycle rental, dry cleaning or snow shoveling. In that case, too, you'll need to pay self-employment taxes on your rental income since you'll have current business activity.You also have to make quarterly tax payments if your tax liability is over $1,000.

The 10% or 14-day rule

There's a fine line between a rental home and a second home, and the difference matters when it comes to taxes. Renting your home for 14 days or less during the year classifies it as a residential or vacation home. There's no need to declare this income, but then you can't claim any rental expenses as deductions. You can still deduct your property taxes and mortgage interest, though. If you use the property for 14 days or more, or 10% of the total days it's rented, it counts as a second residence. Let's say you rented your property in Honolulu out for 100 days total during the year, but you used it for 20 days during the surfing season. That's more than 10% of the days the property was rented, so it can't be classified as a rental property.

The 1099-MISC form

If you were freelancing or working as an independent contractor before 2020, you're probably familiar with the 1099-MISC. Starting in 2020, the 1099-NEC became the form to report all non-employee compensation, and all other miscellaneous income gets reported on the 1099-MISC. There's still a lot of confusion about who receives a 1099-MISC for rent payments. One thing to look at is how the business is taxed or its tax classification. A business tax classification, or legal structure, helps determine how the business is taxed. Partnerships, sole proprietors and limited liability companies (LLCs) will receive a 1099-MISC if they were paid $600 or more for their services. LLCs and S Corps electing to be a corporation don't receive a 1099. If you want to know your landlord, ask for a W-9 before you make a rent payment. How much money you've received from a client is another determining factor in whether you’ll receive a 1099-MISC. If you receive $600 or more during a tax year in payments for your services, you should be receiving a 1099-MISC. But any personal payments you make don't require you to fill out a 1099. If you pay an electrician, for example, to install new electrical wiring in your basement, this will count as a personal payment. But if you hire the electrician to install the wiring in the basement of your rental property, this counts as a business expense, and you'd need a 1099-NEC.

Do I need to send a 1099 for rent paid by tenants?

Sending a 1099 form to a renter for rental income depends on whether you're the landlord or a property manager. If you're a landlord and your tenant pays you $600 or more in annual rent, you'll need to send a W-9 form to the tenant and report this income on Form 1099-MISC. If you're a tenant and pay rent worth $600 or more for business purposes directly to the landlord or owner, and their tax classification is a partnership, LLC or sole proprietorship, you'll need to report this income on a 1099 rent payment form. If you make rental payments to a property management company, the company is required to send a 1099 for rent to the owner of the property. Renting your property out to a family member does not require a 1099 rent payment since this is considered a personal payment. Or, if you own a property and a business that operates as an S Corp, and the company rents space in your building, you won't receive a 1099 for rental income due to your business entity classification.

Rental property deductions

As a landlord, there are a lot of expenses to manage when it comes to rental properties. One way to save some money is to take advantage of every deduction you possibly can. Itemized deductions are recorded on Schedule E for landlords. Some common deductions you can take advantage of are:
  • Rental property insurance
  • Property management fees
  • Marketing fees
  • Homeowners association fees
  • Repairs and maintenance
  • Screening fees for tenants
  • Accounting costs
  • A 1099 tax calculator can help you find more deductions you can claim.

Is rental relief taxable?

Rent relief, or the Emergency Rental Assistance Program (ERA), provides funds to households that are unable to pay for utilities and rent. Tenants or landlords apply to the state or local programs for assistance, and the funds are distributed accordingly from the US Department of Treasury's ERAP program. Any funds received from the program are not considered income and should not be included as gross income on your tax return. Even if the money was paid directly to the landlord or utility companies, it's still not considered income.
Alt text: Flyfin image with eligibility requirements for rental assistance. Includes lost income, qualified unemployment, financial hardships, housing instability, and risk of homelessness. No mention of self-employment, 1099, freelancer, or taxes.
Landlords aren't off the hook, and any rental payments you receive, including ERA funding on the tenant's behalf, are included in your gross income. Handling taxes is never easy, whether you're a landlord or tenant. With the help of FlyFin, filing taxes couldn't be easier for anyone receiving 1099 income. The app's powerful A.I. automatically tracks your expenses to find every possible deduction. Then the expert CPA team reviews your taxes and is available 24/7 on the app to answer any questions. You'll save tons of time and money!

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