Attention owners of rental homes and properties . . . You aren’t going to like one of the tax changes that appears to be on the horizon for 2011 as part of the revenue offset of the recent Small Business Jobs and Credit Act of 2010.

The legislation would require an IRS Form 1099 for rental property expense payments.  The provision would subject all recipients of rental income from real estate to the 1099 reporting requirement, with the exception for taxpayers that rent their principal residence on a temporary basis, receive minimal amount of rental income, or would experience a hardship under this provision.  This provision would give the Department of Treasury the authority to determine what constitutes a “minimal amount” of rental income and what constitutes a “hardship.”  According to JCT, this provision would increase revenue by $2.546 billion over 10 years.  (source:  www.gop.gov/bill/111/2/hr5297senateamendment)

In simple terms, the bill makes recipients of rental income fall underneath the same information reporting requirements as those taxpayers engaged in a trade or business. If you make payments over the course of a year of more than $600 to a service provider in the course of earning rental income, (landscaper, plumber, electrician, painter, etc.), you would be required to send a year end 1099 to those service providers. This would all apply to payments made after December 31st, 2010.  Get any year end work on your rental properties that you need done right now!

It never ceases to amaze me about how we continue to swing and miss on some of the policies created in these bills.  There is a huge difference between someone who does real estate or makes their trade from the buying, selling, and renting of homes, and a family that has one or two rental properties. In addition, how quickly do think people and these vendors will start using cash to stay underneath the $600 number? And if we are going to track expenses, wouldn’t you think that the tracking of rental revenue would look the same?

I suppose with housing sales slumping, the bill makers thought it would be a good idea to create more paperwork for the very people who have the financial means to buy more homes.  Is that going to make them buy more or less homes?  You don’t have to be the CEO of a Fortune 500 company to figure that one out.  Put 1099 down as your favorite new term to know if you own rental homes because the bad news just arrived. If you are landscaper that works on lots of rental homes, now is the time to find yourself a good accountant!

Other Related Reading – Why Doesn’t The Government Understand The 80-20 Rule? , Why Refinance Back into a 30-Year Loan? ,  Estate Tax To Return In 2011 , Top 10 Financial To Do’s During Open Enrollment Season , Consequences of Unfiled Taxes and What to Do Now , How Can A Business Owner Save Money?

oXYGen Financial, Inc. co-CEO Ted Jenkin  is one of the foremost knowledgeable professionals in giving financial advice to the X and Y Generation.

Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder oXYGen Financial, Inc.

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