1099's? Landlords--If qualify for the 199A deduction--1099s!

[ValRose]

This is turning out to look like a penalty trap, especially for the landlord with 1-2 properties who has a handyman that "would rather be paid in cash" (common situation because mind you, it is very hard to find a good handyman). This person is lulled into taking the 199a deduction and then is set up for potentially steep penalties for not issuing 1099k. This reminds me of another penalty trap: where a low income household member qualifies for medicaid based on their near indignant status, but then is claimed as a dependent by the person they are living with which sets them up to be fined by medicaid for repayment.

Wow Dude I wasn't aware of that! Don't know that I've ever encountered it--But something to look out for... Seriously--If someone on Medicaid is claimed as a dependent--they lose/have to pay back medicaid? I suppose that means they were supposed to report on their Medicaid application that their rent (and perhaps more) was provided by a relative? (or whomever)...
Question- Would it be ok if someone provided them a free place to live, as long as not claiming them?

[Dude]

ValRose: From an IRS perspective, I look at it as a separate household under the same roof situation. If the Medicaid recipient qualifies as their own household they can't be claimed as a dependent. Where I see this used is with adult children and parents who are not old enough or do not have the credits to qualify for Medicare. In my effort to warn clients of this potential pitfall I wanted to find out the specific penalties. I spoke with several lawyers for clarification, but they did not know the specifics either. I do believe that if you claim such a person you are setting them up for a payback penalty from Medicaid which would be detected by the IRS filing. A tar pit that would be rather easy to fall into.

[TaxGuyBill]

Medicaid rules vary by State, depending if they fully 'expanded' the ACA Medicaid rules or not. For the most part, claiming a person will NOT affect their Medicaid eligibility if they are in a Medicaid 'expanded' state (there are a few exceptions, depending on what the relationship is and in some cases the age of a child).

What State are you talking about, and what type of relatives or non-relatives are you talking about?

[JON]

I think trade or business for the small landlords would not hurt chances....Why not try to see that it gets done!!

[frankie123]

Have question on the 199A deduction for rental property owners. Have client that has 33 properties is a P/S with wife. This year they have rental profit of a little over 99,000. I ran up a "what if 1040" and the out come after everything comes up giving him 11,000 in that deduction. That really scares me since I have not seen any definite ruling on rather Rentals as a section 162 trade or business. I know there were no 1099's which I see talked about here but he did pay every expense by check. He also qualifies under the safe harbor 3 rules. Anyone have any information on this. Please let me know today. Thanks

[TaxGuyBill]

Whether or not a rental is a §162 "business" or not is a fact-and-circumstances type of thing, without any clear-cut rules. However, 33 rentals in undoubtedly a business qualifying for §199A, and requires 1099s when appropriate.