There’s been a lot of changes in the world of property management over the past year, from a growing market for single-family rentals to new conversations around rent control laws in light of the pandemic.
With so much in flux, planning for 2022 can be difficult to say the least. The last thing you want is for property management tax reporting to add to that confusion. That’s why we’ve created a guide to help to make the 1099 filing process as smooth as possible.
Let’s dive into what you need to know about the 1099-MISC and recently introduced 1099-NEC forms, so you’ll be set up for success in 2022:
What Is a 1099-MISC Form?
The IRS uses the 1099-MISC to report a variety of income received that isn’t reported on standard W2 forms. While non-employee compensation is now filed under the 1099-NEC (we’ll get to that later), you’ll still need to file a 1099-MISC for:
- Rent income Prizes and awards
- Other income payments
- Cash paid from a notional principal contract to an individual, partnership, or estate
- Fishing boat proceeds
- Medical and health care payments
- Crop insurance proceeds
- Payments to an attorney
- Section 409A deferrals
- Non-qualified deferred compensation
For property management tax filing, this means that 1099-MISC forms are the primary method to report:
- Rent provided to an owner from a leased property totaling $600 or more
- Attorney fees totaling $600 or more
Property managers are required to issue a 1099-MISC form to each owner and attorney they work with, so long as payments meet or exceed the $600 threshold. The IRS makes (typically small) adjustments to the 1099-MISC form each year. For 2021, the form looks like this:
What is a 1099-NEC form?
Last year, the IRS began requiring businesses to report non-employee compensation in a separate form, the 1099-NEC. We’ve created a detailed breakdown of the form and what it means for property managers here, but here’s the basics of what you should know:
Property managers must file a 1099-NEC when they pay an unincorporated independent contractor $600 or more in a year for work done on a rental property owner’s behalf or directly for the manager’s own business. You’ll need to send a 1099-NEC instead of a 1099-MISC if you made a payment:
- Of at least $600 to an individual or organization during the year
- To anyone who isn’t an employee (this can me an individual, a partnership, an estate or, in some cases, a corporation)
- For services provided as part of your business (including to government agencies and nonprofit organizations)
Source: The Society for Human Resource Management (SHRM)
For property managers, these criteria typically boil down to payments made to:
- Maintenance providers such as landscapers, plumbers, and HVAC professionals
- Service providers such as locksmiths, laundry and dry cleaning, or fitness instructors
- COVID-related services such as deep-cleaning and sanitizing services
It’s always a recommended practice to consult a tax professional if you’re unsure whether a particular payment falls into the right category for a 1099-NEC. To give you an idea of what to expect, the form for 2021 looks like this:
1099 Exemptions for Property Managers
There are a few scenarios in which property managers are exempt from filing a 1099. As mentioned earlier, 1099s aren’t required for any payments less than $600.
If the rental property owner is established as a corporation, you do not need to file a 1099-MISC form for payments made to that company. You’ll still need to file a 1099-MISC if the property owner is a limited liability company, or LLC, however.
You also do not need to file a 1099-NEC form for any maintenance work or other services done by an incorporated business. Again, this exemption does not apply to LLCs.
1099 Requirements for Property Owners
If you own the property you are managing (a private landlord), you do not need to file a 1099 for any work related to that property. This has been the case since the reporting requirements within the Affordable Care Act and Small Business Jobs Act were repealed in 2011.
When determining if a certain payment needs to be reported on a 1099, it’s always a good idea to meet with a tax professional to make sure you are filing correctly and to avoid any penalties.
Deadline for 1099 Forms
1099-MISC: If you’re filing on paper, your 1099-MISC form must be postmarked and mailed by February 28, 2022. If you are filing electronically, you must submit the form by March 31, 2022.
1099-NEC: For the 1099-NEC form, you must either postmark and mail your paper form or submit your form electronically by January 31, 2022.
All your 1099 forms must be submitted together, along with one copy of Form 1096, the IRS equivalent of a cover letter. You can obtain an original Form 1096, 1099 forms and any other official tax documents from the IRS directly ( photocopies won’t work) through their website.
Tips for Property Managers Filing the 1099-MISC and 1099-NEC
It’s almost always easier to file 1099s electronically (eFile) and the IRS requires you to do so if you’re filing 250 or more 1099-MISC forms.
It’s also a good practice (and recommended by the IRS) that you keep copies of your 1099-MISC forms for at least 3 years (4 years if backup withholding was imposed).
eFiling through property management software can make each step of the process easier, allowing you to fill out 1099s in minutes and get them postmarked the same day. This not only speeds up the process for property managers, but also reduces the time and effort vendors, owners, and other partners have to spend.
Tips for working with vendors on 1099s
It helps to have vendors fill out a W-9 when you start working with them. The information contained within the W-9, including the vendor’s tax ID number and address, will be useful when it comes time to fill out a 1099 for that work.
How to File 1099 Forms for Property Management
You’ve got several options when filing 1099 forms. You can do it yourself, either by mailing the documents in person or electronically through the IRS Filing Information Returns Electronically (FIRE) system or you can hire an accountant or a CPA to do it for you. You can also write your own software to e-File with the IRS, but it will take time and may only be a viable option next year, if you haven’t started already.
Using existing, purpose-built software is often the fastest and most cost-effective way to go. Through Buildium’s property management software, you can generate and send 1099s, including both the 1099-MISC and 1099-NEC, to all of your owners, vendors, and contractors. Buildium also lets you start the process a whole month earlier than when filing officially opens with the IRS, so you can get a jump on tax season.
Staying on top of tax reporting is essential for any size property management company. Penalties for not filing 1099 forms can range from $280 to $500 and deductions tied to the income can be disallowed if you fail to file, meaning the owners you work with won’t be able to claim the property expenses as tax deductions.
Luckily, you’ve got the knowledge and tools to make filing 1099 forms for property management a breeze. A property management software platform can do a lot of the heavy lifting and keep you well ahead of deadlines, so, rather than looking back, you can focus on your business goals for 2022.Read more on Accounting & Taxes