Requirement to filie 1099 Misc on Schedule E rental expenses.

[taxea]

Jesse you are most welcome.

[taxea]

I know IRS is hot on "unreported income"! So I need something clarified here. If the taxpayer pays his "handy man" more than $600 during the year to work on his rental property(ies) and the "Handy Man" is self employed. Is the Taxpayer required to issue the 1099-misc for this service? Is it required in order to deduct those expenses?

If the rental owner is not a RE Pro then, no, it is not required.
f the rental owner uses a rental manager then the managing company will usually issue 1099's to both the rental owner and IC's that they hire to perform services on behalf of the rental owner.

The law addresses persons/companies that are required to issue 1099's. It does not prohibit private parties from issuing 1099's to any type of worker that is hired and I, as a private citizen and not as part of anything done for my business, issue 1099's for work done on or at my personal residence etc in excess of $600. Just because there are so many people out their hiding their income. When they hide income I pay more taxes. I don't want to pay more taxes so I am not going to aid them in hiding the income I paid to them to work for me in the capacity of an IC.

[Burke]

OK, so working with a client with bookkeeper using QB to prepare Forms 1099. One vendor was paid via credit card each month. That appears on her list for 1099s. But, doesn't the credit card issue a Form 1099-K to that vendor? Do we issue a Form 1099-MISC also? Or, do we not?

It is appearing on her list for 1099's because she has coded it as such in the vendor information input section of QB when she first paid them or set them up. She can delete that. But you don't say whether this is in the business of rental property or not. Is it another type business? And where the vendor is NOT a corporation, so such 1099MISC is required? It would seem if credit card companies are all routinely issuing 1099K's now, the reporting of 1099MISC by the payor would be a real problem. However, the IRS notice of 8/12/12 indicates (regarding 1099-K reporting) that "trades and businesses" are still required to issue 1099MISC to IC's. I think that rentals are deemed not to be a trade or business.

[nwtaxlady]

1099-Misc for IC?

I suppose in the event that the rental owner chooses to issue 1099m to IC's. I recommend this practice because these are the people, some of which try to hide income by asking for cash payments for the work they do.

I know IRS is hot on "unreported income"! So I need something clarified here. If the taxpayer pays his "handy man" more than $600 during the year to work on his rental property(ies) and the "Handy Man" is self employed. Is the Taxpayer required to issue the 1099-misc for this service? Is it required in order to deduct those expenses?

[Jesse]

Let me clarify my response. This was the question asked that I had replied to:

What I am wondering about is why in the world, if these requirements are repealed, do the question about the 1099's still show on Schedule E?

This is the only reason I could think of as to why the question is on schedule E :

Just a thought - in some cases It may be necessary for Real Estate Professionals?

If a landlord "chooses" to file a 1099MISC the "yes" box would not need to be checked as it is not required.

This was your response that I assumed was aimed at my answer as you replied with the quote of my response. Maybe I misunderstood?

A Real Estate Pro files a Sch C, not Sch E and because it is considered a business is required to file a 1099m to IC's.
If the owner/landlord of a rental, who is not an RE Pro and who files a Sch E, I think should check yes if issuing 1099m.

I just wanted to clarify for those that are not as knowledgeable as you that under this definition of “Real estate professionals” you would not file a schedule C, but you would file a schedule E and you may be REQUIRED to file one or more 1099MISC. From Pub 527:
Real estate professionals. If you are a real estate professional, complete line 43 of Schedule E.

You qualify as a real estate professional for the tax year if you meet both of the following requirements.
-More than half of the personal services you perform in all trades or businesses during the tax year are performed in real property trades or businesses in which you materially participate.

-You perform more than 750 hours of services during the tax year in real property trades or businesses in which you materially participate.
If you qualify as a real estate professional, rental real estate activities in which you materially participated are not passive activities. For purposes of determining whether you materially participated in your rental real estate activities, each interest in rental real estate is a separate activity unless you elect to treat all your interests in rental real estate as one activity.

and RE pros that work under a broker (which is required unless they are a broker) are considered IC by the broker and file a Sch C even when they manage rental property and don't provide personal services for the renter....ie maid service, etc.

In my professional opinion you are 100% correct, a RE agent, as well as the broker the RE agent works under, or a RE developer would file a schedule C as they are not passive activities. As I continue to educate myself I now know there is definitely a difference between “Real estate Professionals” that would file a Schedule E and “RE pros” that would file on Schedule C. I appreciate you taking the time to explain this to me.

[taxea]

and RE pros that work under a broker (which is required unless they are a broker) are considered IC by the broker and file a Sch C even when they manage rental property and don't provide personal services for the renter....ie maid service, etc.

[Jesse]

With all due respect

in my professional opinion you are incorrect.

A Real Estate Pro files a Sch C, not Sch E and because it is considered a business is required to file a 1099m to IC's.
If the owner/landlord of a rental, who is not an RE Pro and who files a Sch E, I think should check yes if issuing 1099m.

http://www.irs.gov/publications/p527/ch03.html



Schedule C (Form 1040), Profit or Loss From Business


Generally, Schedule C is used when you provide substantial services in conjunction with the property or the rental is part of a trade or business as a real estate dealer.

Providing substantial services. If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, you report your rental income and expenses on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Use Form 1065, U.S. Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. For information, see Publication 334, Tax Guide for Small Business. Also, you may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. For a discussion of “substantial services,” see Real Estate Rents in Publication 334, chapter 5.

Real estate professionals. If you are a real estate professional, complete line 43 of Schedule E.

You qualify as a real estate professional for the tax year if you meet both of the following requirements.
•
More than half of the personal services you perform in all trades or businesses during the tax year are performed in real property trades or businesses in which you materially participate.

•
You perform more than 750 hours of services during the tax year in real property trades or businesses in which you materially participate.

If you qualify as a real estate professional, rental real estate activities in which you materially participated are not passive activities. For purposes of determining whether you materially participated in your rental real estate activities, each interest in rental real estate is a separate activity unless you elect to treat all your interests in rental real estate as one activity.

[taxea]

Just a thought - in some cases It may be necessary for Real Estate Professionals?

If a landlord "chooses" to file a 1099MISC the "yes" box would not need to be checked as it is not required.

A Real Estate Pro files a Sch C, not Sch E and because it is considered a business is required to file a 1099m to IC's.
If the owner/landlord of a rental, who is not an RE Pro and who files a Sch E, I think should check yes if issuing 1099m.

[taxea]

Thank you both for your comments. Regarding taxea's comment I agree that it wouldn't hurt to make the filing, but my clients were a bit dubious about how their ICs might react. In doing some of the research that KBTS mentioned I found similar client concerns mentioned in a 2010 post. At any rate, I appreciate the help.

If the IC has nothing to hide, they hide nothing. I base my recommendation on the fact that I have experienced IC's with local business licenses' asking for cash payment. What other reason could they have than to be failing to report this income?

[Gretel]

Just a thought - in some cases It may be necessary for Real Estate Professionals?

That is a good point. He is a Real Estate Professional and by that demonstrating that he is the the business of renting.

[Jesse]

Credit Card payments are excluded and if entered in QB correctly will not show on the list, I never had to deal with this and cannot remember what needs to be done in QB. Has something to do with an abbreviation in the check number.

What I am wondering about is why in the world, if these requirements are repealed, do the question about the 1099's still show on Schedule E?

Just a thought - in some cases It may be necessary for Real Estate Professionals?

If a landlord "chooses" to file a 1099MISC the "yes" box would not need to be checked as it is not required.

[Gretel]

Still doesn't make any sense. Actually, the rentals I am thinking about I do a lot of work, so my fees are well over $600 on each on of them and are the only required 1099's, if indeed they are required. So, I really would like to find out for sure.

[taxea]

Credit Card payments are excluded and if entered in QB correctly will not show on the list, I never had to deal with this and cannot remember what needs to be done in QB. Has something to do with an abbreviation in the check number.

What I am wondering about is why in the world, if these requirements are repealed, do the question about the 1099's still show on Schedule E?

I suppose in the event that the rental owner chooses to issue 1099m to IC's. I recommend this practice because these are the people, some of which try to hide income by asking for cash payments for the work they do.

[Gretel]

Credit Card payments are excluded and if entered in QB correctly will not show on the list, I never had to deal with this and cannot remember what needs to be done in QB. Has something to do with an abbreviation in the check number.

What I am wondering about is why in the world, if these requirements are repealed, do the question about the 1099's still show on Schedule E?

[Lion]

Credit Card Payments

OK, so working with a client with bookkeeper using QB to prepare Forms 1099. One vendor was paid via credit card each month. That appears on her list for 1099s. But, doesn't the credit card issue a Form 1099-K to that vendor? Do we issue a Form 1099-MISC also? Or, do we not?