1099 for Rental Income: What Landlords Need to Know
As fellow landlords here at Azibo, we know rental property taxes can really make your head spin. When tax season rolls around, keeping up with changing 1099 rental income requirements, tracking all your incomes and expenses, and actually filing reports can sometimes make you feel like you need a math degree. There has to be an easier way, right?
Here's the good news — we’re going to walk you through the rental 1099 process so you can check it off your list with confidence. No advanced accounting skills required, we promise!
And if you’re a new landlord just starting out, don't worry — we’ll cover the basics so veteran and rookie rental owners alike can master their taxes with ease. Sound like a plan? Then let’s get this show on the road!
What is a 1099 form?
A 1099 form is a collection of documents used to report different types of individuals or businesses receiving income, such as rental property owners.
The purpose of these forms is to provide information to the taxpayer and the Internal Revenue Service (IRS) for tax reporting purposes.
Understanding 1099 for rental income
Landlords historically didn't need to report or file 1099 forms for rental income under $20,000. However, new IRS rules taking effect in 2024 lower the reporting threshold to $5,000. The change comes from the American Rescue Plan Act, passed in 2021, to catch more unreported income.
What if you don't receive rental payments via a payment processor, or your service doesn't provide a 1099-K reporting form? As the rental property owner, you'll need to file the IRS 1099-MISC form yourself, reporting all rental income received on a monthly basis over the full year.
1099 form types
There are a few common 1099 varieties that rental owners should understand in order to use the proper forms for income reporting.
Form 1099-MISC is a miscellaneous income form designed for declaring a range of income types. Landlords and real estate investors who collect rent through cash, money transfers or physical checks use this form to report rental income.
Form 1099-NEC is used for reporting non-employee compensation, such as payments made to independent contractors or freelancers for services rendered.
This tax form is required for payments exceeding $600 over the course of a year to non-employees who provided services in the context of your business operations. You might make these payments to either individuals or a limited liability company.
A typical instance where landlords use a Form 1099-NEC would be to pay for attorney fees incurred.
Form 1099-K is a form the IRS requires from third party processing vendors and online rent collection platforms to report the rental income paid to property owners through those digital services.
Rental income taxes
At the end of the year, the IRS mandates reporting all income earned through rental properties. To understand how to determine your taxable income from rental properties, consider the following steps:
Step 1: Calculate your total rental income
For example, if you rent out a property at $1,500 per month, your total rental income for the year would be $18,000.
Step 2: Deduct allowable expenses
Subtract any allowable tax deductions related to your rental activities from your total rental income. The remaining amount is your net taxable income.
Step 3: Determine your tax liability
The net amount after deductions is what you will need to report as taxable income. The IRS will tax you on this income at your current income tax rate.
What qualifies as rental income?
Besides income from regular monthly rent payments, you may have additional sources of income to report on your 1099 for rental income. Here are a few of the most common types:
When tenants provide a security deposit, it's typically considered rental income. The exception is if the security deposit is refundable and returned to the tenant.
Lease cancellation payments
If a tenant terminates their lease early and pays a cancellation fee, you should also include that amount as rental income.
Any extra fees charged to tenants, such as application fees, pet fees, or parking fees, are generally considered rental income.
Tenant-paid owner expenses
Sometimes, tenants might pay for certain property-related expenses directly, like repairs or utilities. These expenses, when paid by the tenant, should be reported as rental income.
You might have instances where tenants may provide goods or services in lieu of rent, such as performing maintenance tasks or offering professional services. These in-kind payments should be valued at their fair market value and reported as rental income.
Landlord tax deductions
There are several tax deductions that you may be eligible for when filing your taxes. Here are some common deductions to consider:
- Depreciation expenses: Rental properties may experience depreciation over time, letting you to deduct a portion of the property's value each year.
- Security systems and monitoring services: You can deduct the costs of investing in a security system or paying for monitoring services for the rental property.
- Homeowners Association (HOA) fees: You can deduct these expenses if you pay HOA fees for the rental property.
- Landlord insurance costs: You can claim deductions for the premiums paid for landlord insurance coverage.
- Landlord software fees: You can claim deductions for the associated fees of using software, such as accounting or property management software, to manage your rental property.
- Landscaping fees: Expenses you incur for landscaping and yard maintenance, such as trimming trees or mowing the lawn, may qualify for deductions.
- Legal and professional fees: Fees paid to lawyers, accountants, property managers, or other professionals for rental property-related services are generally deductible.
- Mortgage interest: If you hold a mortgage on the rental property, you are eligible to deduct the interest paid on that loan.
- Office space expenses: If you maintain an office space for your rental business, you can deduct these expenses.
- Property management fees: Any fees paid to a property management company or property manager for managing your rental property are deductible expenses.
- Repairs and maintenance costs: Any expenses related to repairs and maintenance of the rental property, such as fixing plumbing issues or repainting, can be deducted.
- Utilities: Deductible utility expenses include electricity, water, gas, and trash services that you pay for.
Rental income reporting
Accurately tracking and submitting rental income and expenses is key for tax compliance, especially with recent updates to 1099 reporting regulations. Landlords must have reliable systems in place to consolidate information and generate the required rental reports.
Azibo's all-in-one platform simplifies rental reporting with several key features:
- A centralized dashboard to track all rental income and costs.
- Bank account connections for automated transaction categorization.
- Digital receipt upload to log expenses.
- Schedule E reporting providing a breakdown of earnings, deductions, and net taxable rental income.
By leveraging these capabilities to compile and organize rental data all year long, landlords can easily produce comprehensive tax documents like Schedule E, rather than relying on traditional spreadsheets. This saves significant time while reducing potential errors.
1099 form for rental income
Going through rental reporting requirements can feel like a lot to digest, but now, you should have clarity on properly tracking income and expenses all year long in order to accurately submit 1099 forms.
Whether receiving payments digitally or by check, documenting your rental earnings to the IRS is a key responsibility. However, this process doesn't have to feel messy or confusing when you have some fundamental best practices in place.
If any additional questions come up surrounding forms like 1099-MISC or 1099-K, always consult a tax professional for guidance. Proper income reporting requires diligence but gives rental owners peace of mind in maintaining compliance. Now, it's time to apply these rental reporting lessons learned to pave the road for a smooth tax season ahead.
1099 for rental income FAQs
Do all landlords get a 1099?
No, not all landlords receive a 1099. It's typically issued to landlords who use property management services or online platforms that process rental payments, and only if you meet certain income thresholds.
Do I need to issue a 1099 to the property management companies for rental income?
If your property management company is considered an independent contractor and you pay them $600 or more for their services, you should issue a 1099-MISC. However, we recommend consulting with a tax professional for your specific situation.
When is the deadline for filing 1099 forms for rental income?
The deadline for filing 1099-MISC forms is typically January 31st of the year following the tax year in which you made the payments. Make sure to check for any updates or changes to the deadline.