Update: The new 1099 form requirements have been delayed until 2024 meaning the original threshold of $20,000 in transactions will persist through 2023.
There are a number of ways landlords can collect rent, from cash and checks to online payment platforms like Venmo or Paypal, as cash or checks, to landlord software like Landlord Studio.
Whereas it used to be possible to receive payments without reporting the earned amount during tax time, the rules have now changed, In an attempt to crack down on unreported rent, the Internal Revenue Service (IRS) has implemented a change regarding rental income reporting in 2022.
According to the new regulations, landlords and property managers must now ensure they report all rental income over $600 during tax season, as opposed to $20,000 (which was the previous limit).
This article explains exactly what this means and what you need to know about filing a 1099 form for reporting rent payments.
About the 1099 Requirements for Rental Income
Although all taxable income legally needs to be reported, under the old rules there was no obligation to file 1099 for rental income of less than $20,000 over the course of the year. This is because this amount could have been gifts or money transfers between friends and as such would not be taxable. The IRS has now reduced this limit to $600.
The change comes from the American Rescue Plan Act which was signed into law by Congress in 2021 and is intended to address unreported income earned through non-employment-related channels.
This change affects how payments are collected and reported through third-party processing vendors such as PayPal, Venmo, and Zelle.
Services like PayPal and Venmo will provide you with a 1099-K if you cross the new threshold amount. If you use a service that doesn’t, you’ll be responsible for filing the appropriate form yourself.
To properly report earned income, you’ll need to file a Form 1099-K with information on how much income you’ve collected each month in the year. Failing to correctly report your rental property income to the IRS can result in fines and penalties.
About the Three 1099 Forms?
The 1099 form is a tax form that documents income from a source that isn’t an employer. Examples include rental income, earnings made as an independent contractor, and a tax refund from the state or local level. There are 20 different variations of the 1099 form, but only a few are relevant to landlords
Form 1099-MISC
The 1099-MISC form, as its name implies, is intended for reporting various types of income. This is relevant to landlords and real estate investors who receive rental payments via physical checks or cash.
Form 1099-NEC
The 1099-NEC form is utilized by businesses to document payments made to individuals who are not their employees for services rendered during the year. In the event that a landlord hires an independent contractor for maintenance and repair work, they will be required to furnish them with a 1099-NEC if the cumulative payment amount exceeds $600.
Form 1099-K
If you use an online credit card processor for rent, such as Stripe or Square or receive funds through an online payment service platform like PayPal, Zelle, or Venmo or landlord software like Landlord Studio and the transactions for the tax year surpass $600, it is probable that you will receive a Form 1099-K disclosing these payments.
Find out more about the 1099 form here.
About Rental Income Taxes
According to the IRS, all income earned through the action of renting a property needs to be reported at the end of the year. For example, if you rent a unit out for $2000 a month you would bring in $24,000 a year. This amount minus the allowable tax deductions is your taxable income and will be taxed at your current income tax rate.
In addition to rental income, there may be other sources of income you’ll need to record and report at the end of the year. For example, if you charge an additional fee for parking or keep a portion of the tenant’s deposit to cover damages at the end of the tenancy. Other sources of taxable income might include lease cancellation payments or tenant-paid owner expenses.
How To Report Rental Income
Due to these updated regulations around the 1099 for rental income, it’s essential for landlords and real estate investors to accurately report their rental income at the end of the year. The best way to do this is to employ quality income and expense tracking software like Landlord Studio.
Traditional methods like spreadsheets and paper are time-consuming to keep updated and prone to errors. Landlord Studio makes it easy. Digitize receipts at the point of sale, connect your bank accounts to reconcile transactions in real-time, and use our online rent collection system to automate the entire rent collection and income tracking process.
At the end of the year, you can share your rental property accounting information with a tax professional, you can export financial data in any of our accountant-approved reports including our powerful Schedule E report.
Once you reach the $600 threshold of rental income, our payments partner will provide you with a 1099-K form to simplify your tax-filing prep.
Common Landlord Tax Deductions
Before you fill out your 1099 tax form for rent payments, consider the tax deductions you may qualify for. A tax professional will ultimately determine which tax deductions make the most sense, but it’s important to be aware of those that exist. Some common deductions include:
- Mortgage interest
- Homeowners Association (HOA) fees
- Depreciation expenses
- Utilities
- Landlord insurance costs
- Repairs and maintenance costs
- Home security systems and monitoring services
- Landscaping fees
- Legal and professional fees
- Landlord software fees
Find out more about common landlord tax deductions
Simplify Rent Collection With Landlord Studio
Accurately tracking your rental income can make filling out 1099 for rental income much easier. By collecting rent payments with Landlord Studio, landlords and property managers can eliminate any guesswork.
Our easy-to-use accounting tools keep transactions organized for easy visibility and can be sorted by category, building or unit, and date in preparation for tax season. You can even evaluate the performance of your rental properties by comparing the income generated to your operating expenses.
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