Information Reporting for Certain Recipients of Rental Income

Beginning with payments made after Dec. 31, 2010, with certain exceptions, taxpayers receiving income from rental real estate are considered to be in the trade or business of renting property, and subject to the same information reporting requirements as taxpayers in other trades or businesses. That is, if an owner of rental property makes a payment of at least $600 to a service provider (such as a plumber. electrician, accountant, etc.) during the tax year, the owner must file an information return with IRS and with the service provider. Typically, the payments will be reported on Form 1099-MISC.

Certain taxpayers are exempt from this information reporting. You will not have to report payments to service providers if you fit within one of the following categories:

• an individual who receives rental income of no more than the “minimal amount.” This amount has not yet been defined and is to be determined under IRS regs;

• an individual who receives substantially all rental income from renting his principal residence on a temporary basis. This category includes active members of the uniformed services and employees of the intelligence community; 

• and any other individual for whom the information reporting requirements would cause hardship.

Note that the exceptions refer to individual taxpayers. Presumably, therefore, if you own rental real estate as a corporation, partnership, trust, estate or other entity, that entity will be subject to the information reporting rules even if one of the above conditions is met. In addition, many of the terms used are not defined and will need to be clarified by IRS guidance.

Please keep in mind that this is only an overview of the new rental real estate information reporting rules. If you would like further information, please contact me at your earliest convenience.

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