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Jon R Roberts' Blog

By Jon R Roberts | Broker in Denver, CO

New Tax Law for Landlords

A self-employed service provider such as a gardener, plumber or accountant you hire to perform services for your rental activity is an independent contractor for tax purposes -- and not your employee.


As such, your tax responsibilities toward him or her are modest. The general rule is that whenever you pay an unincorporated independent contractor $600 or more during the year for business-related services, you must:


1.   File Internal Revenue Service Form 1099-MISC reporting how much you paid the workers; and

2.   Obtain the workers' taxpayer ID number.

The IRS imposes these requirements because it is very concerned that many independent contractors don't report all the income they earn. To help prevent this, the IRS wants to find out how much you pay independent contractors and make sure it has their correct tax ID numbers.


Until this year many landlords were exempt from this reporting requirement. Only landlords whose rental activities qualified as a business were required to file Form 1099s with the IRS. Landlords who were only investors were not required to comply with these reporting requirements.


However, the law has changed. Subject to some important exceptions noted below, starting in 2011 all landlords must comply with the 1099 reporting rules, even those who are investors for other tax purposes.  So if you haven't filed 1099s in the past, you may have to start doing so for independent contractors you hire for rental-related work in 2011 and later.


But there are some exceptions to this new rule. The following groups of landlords who are investors need not file 1099s:


1.   Landlords who obtain substantially all of their rental income from renting their principal residence on a temporary basis;

2.   Landlords whose annual rental income is less than a minimum amount to be established by the Internal Revenue Service; and

3.   Other investor-landlords for whom complying with the reporting requirements would cause hardship -- the IRS will adopt regulations providing guidelines on what constitutes a hardship.

Starting in 2012, you'll have to file a Form 1099-MISC for each unincorporated service provider who performed services for your rental activity and who was paid more than $600 during the year (all payments made over the entire year are added together for purposes of the reporting threshold).

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