1099

[Kram BergGold]

My client owns one residential rental. He has asked me, "do I need to file 1099 Forms for the painter and carpenter I paid last year." Quite frankly I have never thought about this nor have I ever seen a Schedule E filer give anyone a 1099 Form. What does everyone think?

[taxea]

1099

Depends on whether the worker presented a bill on letterhead and whether the check was made out to the company. However I would always follow the IRS rule, especially when the worker wants cash or the check in his name.
Had a roof on a rental replaced by a Sch C company. When I presented the check the owner wanted the check made out to him not his company. I made the check out to him dba the company name. I fully intend to present him with a 1099 at years end.
taxea

[JG EA]

No

In the instructions for 1099's it clearly states that only a trade or business sends them. (Except for some specific instances like nominee interest.)

Rental property is not a "trade or business" you do not need to send any 1099's!!!

Note this on the IRS page:

"The term trade or business generally includes any activity carried on for the production of income from selling goods or performing services. It is not limited to integrated aggregates of assets, activities, and goodwill that comprise businesses for purposes of certain other provisions of the Internal Revenue Code. Activities of producing or distributing goods or performing services from which gross income is derived do not lose their identity as trades or businesses merely because they are carried on within a larger framework of other activities that may, or may not, be related to the organization's exempt purposes."

http://www.irs.gov/charities/article/0,,id=158841,00.html

[taxea]

1099

I realize that a rental is not required to present a 1099 for services rendered by an independent contractor, however, when it is apparent to me that this independent contractor is attempting to hide income...the 1099misc will be issued. This way I am assured that the taxing agencies are aware that this was income and the IC can explain why it was not declared. taxea

[Kram BergGold]

Thanks taxea

My thoughts were the same as yours but I wanted to be sure. There was a recent post on a Board about a father wanting to give his kid a W-2 for helping out in the care of a rental property. I thought this was bogus for the same reason, not a trade or business but no one else agreed.

[taxea]

1099

Well I certainly would not recommend a W-2 depending on what the age of sonand what he is doing, of course. There is nothing wrong with hiring family. Too little information to decide what options to recommend. taxea

[Joe Btfsplk]

Bogus W-2

My thoughts were the same as yours but I wanted to be sure. There was a recent post on a Board about a father wanting to give his kid a W-2 for helping out in the care of a rental property. I thought this was bogus for the same reason, not a trade or business but no one else agreed.

I agree with you. If the kid did work on Rental Property, he would be an independent contractor unless the Rental qualifies as a business to be reported on Schedule C.

[JON]

I think if you look

back far enough rental on Schedule E is defined as a trade or business allowing depreciation etc. It obviously has different treatments, ie self employment no, but if you had a trailer home park on E-or a rental of a duplex I think you should do 1099s.

[gkaiseril]

I agree with you. If the kid did work on Rental Property, he would be an independent contractor unless the Rental qualifies as a business to be reported on Schedule C.

Sam Zell and Christopher Kennedy and his relatives might disagree with you. I believe they have rather extensive real estate businesses. There are corporations and real estate professionals that have Schedule C or corporate returns with for profit real estate activities.

If an expense is not listed on the Schedule E form does that mean it is not allowed?

Rental Real Estate activities can be done by a corporation, would W-2 wages then not be allowed?

An individual pays a management company to manage his real estate. The individual pays the management company a fee and the management company then bill the individual for all the expenses and they pay a janitor the management company's employee to take care of various properties. Can the janitor paid on a W-2 as an employee of the corporation?

An individual owns 4 10 unit apartment buildings and has an individual full time that takes care of those buildings. The owner provides tools, and provides direction as to what the janitor will do and when certain task will be done and further will determine if a contractor or the janitor will take on certain repair or remodeling tasks. Is the janitor an employee or contractor. Let us assume further that the owner is generous to the janitor and provides health insurance and a retirement plan. Maybe the owner needs to pay benefits to a union for the janitor like other businesses?

The IRS Code does not always follow strict accounting classifications. In accounting rental of real estate is a business as is farming, but the IRSC has special treatment for these activities to accomplish certain legal goals and these rules are not always clear. For example, rental income classified as passive income, but it can also be non-passive, see page E-1 or IRSC section 469(c)(7)(A).

Well then I guess a and individual or a married couple can not pay wages and provide a W-2 and pay employment taxes on household employees since they are not a business.

A quick read of Pub 15 has no exclusion for a schedule E, farm rental or schedule F reference say these activities can not have employees and are not required to pay the associated taxes.

[JG EA]

Not to push the issue but

W-2's are one thing. 1099's are another. If you have a reason to issue a W-2 it is true you do not have to be a business. The Household employee is one example.

Even an investor can pay someone wages on a W-2.


However, if you are talking about sending a 1099 to everyone that does work on your rental (and you are not a Schedule C kind of guy) then it is very clear you do not send a 1099. You are not a trade or business as I quoted above. You are clearly not required to do so according to the instructions for 1099's.

Why do so? The reason for doing a W-2 may be to encourage someone to work for you in your home, to work on your investments full or part time. But, an occasional worker? Presumably your only goal is not just to report to the IRS about everyone is it? Do you then send 1099's to corporations just so the IRS will know who is getting what?

[gkaiseril]

Pub 15 SS-8

IRS Pub 15 list the occupations that have to be paid on a 1099-Misc, Real Estate Agents that sell on a commission, and the requirements for a statutory employee. Everyone else is a common las employee. See form SS-8 for the main questions used by SSA to determine if an working individual is an employee or independent contractor. The IRS also has pub on this. The states can also make the determination and each state may not come to the same conclusion. This is a very grey area.