Do I Need To File a 1099 for My Rental Property? Tax Basics for Landlords (2024)

When does a landlord need to send out 1099s?

If you’re a landlord, you’re responsible for sending your own 1099s to contractors as long as you don’t have a management company handling this process for you.

If you do use a property management company, you’ll only send them a 1099. In turn, they’ll issue 1099s to any contractors they hired to work on your property.

Which contractors do you send 1099s to?

To get a 1099, your service providers — including property managers — must:

• Have received at least $600 from you over the course of the year
• Not be taxed as either a corporation

There is one exception to the “corporation” rule. Lawyers should always be issued a 1099, even if they belong to a corporation.

How can you tell if your contractor is part of a corporation? It will say so on their Form W-9. This is especially helpful if any of them have LLCs, since only some LLCs are treated as corporations for tax purposes.

Let’s run through a few examples of who does and doesn’t need a 1099 from you.

✓ A side hustler without a formal business

Say you hire your neighbor, Destelle, to repair the plumbing in a house you rent out. You know Destelle is great at what they do because they helped you reno your kitchen last year. But Destelle hasn’t set up a corporation or LLC, because right now home renovations are just her side hustle.

You’ll need to send her a 1099 once you’ve paid her $600 or more in a single tax year.

✓ An LLC taxed as a sole proprietor

The same goes if you hire Linda, who runs Clear Pipes Plumbing, an LLC that she owns by herself. She’s built a thriving plumbing business, but she’s still taxed as a sole proprietor — she hasn’t elected to be taxed as an S corp.

Linda has an LLC, but she’ll still need a 1099 if you pay her more than $600.

✘ An S corporation

Now pretend you Google “plumbers in my area” and find McAlister and Sons, a family-run business with a history of over 100 years. They send their employee, Nigel, out to work for you.

They have an office and a staff of twenty people, so it’s no surprise to find out they’re set up as an S corp.

Since Nigel works for a corporation, you won’t need to issue him a 1099, even if you pay him more than $600 for his services.

What type of 1099 forms do landlords issue?

You’ll send out 1099-NECs. There’s a chance your contractors will get a 1099-K instead – but that won’t come from you.

In summary, your contractors will get:

• A 1099-NEC form if you paid them in cash, check, or direct deposit
• A 1099-K form if you paid them using a credit card or an app, such as PayPal or Venmo

However, you’ll only be responsible for sending out the 1099-NECs. 1099-Ks are issued by the payment processor. So if you paid your contractors with a card or an app, that’s one less thing for you to worry about!

Will landlords ever issue 1099-MISCs?

Rarely. 1099-MISCs are not used for payments anymore.

The only time you’ll issue a 1099-MISC as a landlord is if you’re paying a lawyer for something that wasn’t a service — for example, if they’re collecting a settlement payout from you on behalf of their client.

So that covers when landlords should send 1099s — what about the ones you’ll receive?

Do landlords get 1099s from their tenants?

Yes — if you have commercial tenants.

If your tenant is leasing a commercial space from you, they’ll have to send you a Form 1099-MISC (unless you’re taxed as a corporation).

Will you ever get a 1099 for renting residential property?

Maybe, but if you provide housing through a government program.

Your residential tenants won’t send you any 1099s. However, if you participate in Section 8 or another government housing program, you’ll get a 1099-MISC from the program itself. (This will only include the amounts subsidized by the program, not what your tenants paid you directly.)

We’ve got another post about exactly what kind of 1099s landlords receive for rent and why, so be sure to check that out if you’re waiting on your forms!

If you’re stressed about filing taxes on your rental income, try Keeper, a tax app for the self-employed. With our premium plan, you’ll get access to credentialed accountants to juggle your 1099-MISCs, fill out your Schedule E, and make sure you’re finding all the tax breaks you’re entitled to.

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How to reduce your tax bill as a real estate professional

The good news is that all those payments you’re issuing to contractors can actually help lower your tax bill.

Tip #1: Lower your taxable rental income with write-offs

Every time you pay an independent contractor to work on your rental property, that counts as a business expense.

While it’s never fun to write that check in the first place, it does mean you can write the amount off on your taxes. By writing off all the expenses you incur on your properties, you can lower the amount of rental income you have to pay taxes on.

And this applies to all your expenses, not just contractors. While contractor payments are probably one of your biggest business expenses, don’t forget that the little things can add up significantly. Even getting new keys cut can help you save at tax time.

Want to make sure you never miss an opportunity to save? Download Keeper. With the standard plan, you can automatically track what you’re spending on contractors, home improvements, advertising, and more. Upgrade to premium, and you can even file taxes on your rental income — with help from a licensed accountant.

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Tip #2: Use real estate pro status to deduct greater losses

If you’re considered a real estate professional in the eyes of the IRS, you can deduct more in losses than the typical property owner — letting you turn tough years into greater tax savings.

Here’s how it works. Any landlord who actively participates in their rental business can deduct up to $25,000 in real estate losses every year. (Active participation means you’re making significant management decisions, like “approving new tenants, deciding on rental terms, [and] approving expenditures.”)

You can use these losses to offset income from other sources, like a day job, so you end up getting taxed on less income.

Landlords who are considered real estate professionals, though, aren’t capped at $25,000 in losses.

Why losses work differently for real estate professionals

Landlords who aren’t real estate professionals are considered to be making passive income from their rental properties. For real estate pros, though, rental income isn’t considered passive.

Here’s how that works. For example, say you’re operating a real estate business while working a W-2 office job. You earned $70,000 from your office job, but ended up losing $50,000 on your rental properties.

Normally, you’d only be able to deduct half that amount. But if you count as a real estate professional, you’ll get to subtract the entire loss from your day job income. The result? You’re only taxed on $20,000 for the year.

Now, let’s talk about who counts as a real estate professional.

What does the IRS consider a real estate professional?

You count as a real estate professional if both of these are true:

• You spend at least 750 hours a year working on a real estate business that you materially participate in
• At least 50% of the work you do professionally relates to managing your real estate business

You don't need to be a licensed real estate agent or have any formal credentials. Still, the two above requirements could use some unpacking. Let’s break them down.

Requirement #1: You spend 750+ hours a year working on a real estate business in which you materially participate

Material participation essentially means that you’re highly active in running that business on a “regular, continuous, and substantial basis” throughout the year. You’ll have to:

• Have full decision-making power
• Be involved in day-to-day operations

In order words, you’re the hands-on owner of your rental operation — not a mere investor in it.

If you own multiple properties, the 750-hour rule applies to the time you spend across all of them. You don’t have to spend 750 hours on each property.

What counts toward your 750 hours

Your 750 hours can include any time you devote to managing your properties, including:

• ✓ Overseeing repairs
• ✓ Responding to tenant inquiries
• ✓ Collecting rent
• ✓ Creating and posting ads

What doesn’t count toward your 750 hours

Your 750 hours don’t include the time you spend doing business as an investor. Work that doesn’t count includes:

• ✘ Reviewing and preparing financial statements
• ✘ Touring properties
• ✘ Building your real estate portfolio

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Requirement #2: More than 50% of the work you did was for your real estate business

In other words, if at least half the time you spend at work isn’t on your real estate business, then the IRS doesn’t consider you a real estate professional. This means it’s still possible to be recognized as a real estate professional if renting out properties is your side hustle, but it has to be a serious commitment on your part.

If you meet either of the above qualifications, congratulations! You’re a real estate professional, and you can deduct more than $25,000 in losses each year.

Overall, there are a lot of ways to use your rental property expenses to save at tax time. Just be sure to issue all the right 1099s to your contractors, so they can file their own taxes correctly.