Do Landlords Need to Issue 1099s for Rental Property Work?
Understand when landlords must issue 1099s for rental property expenses, how payment thresholds apply, and the importance of proper tax documentation.
Landlords often hire contractors, handymen, and other service providers to maintain rental properties. The IRS requires businesses, including landlords in some cases, to report certain payments using Form 1099. Whether a landlord needs to issue this form depends on factors such as the type of payment, recipient, and total amount paid during the year.
Understanding when and how to issue a 1099 is essential to avoid penalties and remain compliant with tax laws.
Payment Thresholds
Landlords must issue Form 1099-NEC to independent contractors or unincorporated businesses if payments for services total $600 or more in a calendar year. This applies to payments made by cash, check, or direct deposit. However, payments processed through third-party platforms like PayPal, Venmo, or credit cards are reported on Form 1099-K, which the payment processor issues if total transactions exceed $5,000 in a year as of 2024.
Services That Require 1099 Reporting
Landlords must issue Form 1099-NEC for payments to independent contractors performing maintenance or operational work on rental properties, including electricians, plumbers, landscapers, and cleaning services. If a landlord hires a contractor to replace a roof or a cleaning company to prepare a unit for new tenants, those payments require reporting.
Property management companies that are not incorporated also require a 1099 if paid $600 or more. Additionally, legal and accounting services related to rental activities must be reported. Payments to attorneys for lease drafting or accountants for bookkeeping require a 1099.
Routine services like snow removal, lawn care, pest control, and security services also qualify if the provider is not incorporated. A landlord hiring an independent snowplow operator or pest control specialist must issue a 1099 if payments meet the threshold.
Differences Between 1099-NEC and 1099-MISC
Form 1099-NEC is used for payments to independent contractors for services related to a rental business, including self-employed handymen, painters, and electricians. The IRS reinstated this form in 2020 to separate contractor payments from other miscellaneous income.
Form 1099-MISC is used for other payments, such as rent paid to property owners when a landlord manages rentals for someone else. It is also used for legal fees, even if the law firm is incorporated, as well as insurance proceeds related to rental properties. Unlike the 1099-NEC, which is strictly for contractor payments, the 1099-MISC covers a broader range of financial transactions.
Penalties for Failing to File
Failing to issue required 1099 forms can result in penalties that increase based on how late the filing is. The penalty starts at $60 per form if filed within 30 days after the deadline and rises to $330 per form for filings made after 30 days but before August 1. If a required 1099 is not filed at all or is submitted after August 1, the penalty increases to $660 per form. These fines apply separately to both the IRS copy and the recipient’s copy, meaning a single missed form could result in double the penalty amount.
If the IRS determines a landlord intentionally ignored the filing requirement, the penalty is the greater of $660 or 10% of the unreported payment. Additionally, failing to provide a correct taxpayer identification number (TIN) can trigger backup withholding, requiring the landlord to withhold 24% of future payments and remit it to the IRS.
Preparing Proper Documentation
Keeping organized financial records throughout the year helps landlords comply with IRS regulations and simplifies the 1099 filing process. Collecting and storing invoices, receipts, and payment confirmations ensures accurate tracking of the $600 reporting threshold.
Obtaining a completed Form W-9 from each contractor before issuing payments is a best practice. This form includes the recipient’s legal name, business structure, and TIN, ensuring accurate reporting. If a contractor refuses to provide a W-9, landlords may be required to withhold 24% of future payments under backup withholding rules. Using accounting software or a bookkeeping service can further streamline the process by tracking vendor payments and generating 1099 forms when needed.