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ContinueAccording to the IRS regulations, landlords and property managers must now ensure they file form 1099 for rental income over $600.
There are a number of ways landlords can collect rent, from cash and checks to online payment platforms like Venmo or Paypal, as cash or checks, to landlord software like Landlord Studio.
Whereas it used to be possible to receive payments without reporting the earned amount during tax time, the rules have now changed. In an attempt to crack down on unreported rent, the Internal Revenue Service (IRS) has implemented a change regarding rental income reporting which will affect real estate investors from 2024 onwards.
Under these updated 1099 for rent regulations, landlords and property managers must report all rental income exceeding $5,000 for 2024 (with phased thresholds of $2,500 for 2025 and $600 from 2026 onward). This is a significant reduction from the previous threshold of $20,000.
This article explains exactly what this means and what you need to know about filing a 1099 form for reporting rent payments.
Although all taxable income legally needs to be reported, under the old rules there was no obligation to file 1099 for rental income of less than $20,000. This is because this amount could have been gifts or money transfers between friends and as such would not be taxable. The IRS has now reduced this limit to $5,000 and intends to further reduce this threshold over the coming years.
The change stems from the American Rescue Plan Act which was signed into law by Congress in 2021 and is intended to address unreported income earned through non-employment-related channels.
This change affects how payments are collected and reported through third-party processing vendors such as PayPal, Venmo, and Zelle.
Services like PayPal and Venmo will provide you with a 1099-K if you cross the new threshold amount. If you use a service that doesn’t, you’ll be responsible for filing the appropriate form yourself.
The IRS has introduced a phased approach for reporting thresholds that affect third-party settlement organizations, including platforms landlords may use to collect rent:
These thresholds determine when third-party payment platforms must issue a Form 1099-K for payments made for goods or services, including rent. Although the IRS is phasing in these requirements, platforms may still issue 1099-K forms for totals over $600, even before the final mandate takes effect.
Important: Regardless of whether you receive a Form 1099-K, all rental income must be reported on your tax return.
The 1099 form is a tax form that documents income from a source that isn’t an employer. Examples include rental income, earnings made as an independent contractor, and a tax refund from the state or local level. There are 20 different variations of the 1099 form, but only a few are relevant to landlords
The 1099-MISC form, as its name implies, is intended for reporting various types of income. This is relevant to landlords and real estate investors who receive rental payments via physical checks or cash.
The 1099-NEC form is utilized by businesses to document payments made to individuals who are not their employees for services rendered during the year. In the event that a landlord hires an independent contractor for maintenance and repair work, they will be required to furnish them with a 1099-NEC if the cumulative payment amount exceeds the threshold.
f you use an online credit card processor for rent, such as Stripe or Square or receive funds through an online payment service platform like PayPal, Zelle, or Venmo or landlord software like Landlord Studio and the transactions for the tax year surpass the threshold they must file a 1099-k reporting this income to the IRS and also send a copy to you by January 31.
Whether you receive a 1099-k or not, your obligation to report rental income remains the same, regardless of whether you receive this form.
Find out more about the 1099 forms here.
To simplify this process, landlords can use rental accounting software like Landlord Studio to automatically track rental income and expenses, generate reports, and ensure compliance with tax reporting requirements. Learn more about 1099 filing deadlines.
According to the IRS, all income earned through the action of renting a property needs to be reported at the end of the year. For example, if you rent a unit out for $2,000 a month you would bring in $24,000 a year. This amount minus the allowable tax deductions is your taxable income and will be taxed at your current income tax rate.
In addition to rental income, there may be other sources of income you’ll need to record and report at the end of the year. For example, if you charge an additional fee for parking or keep a portion of the tenant’s deposit to cover damages at the end of the tenancy. Other sources of taxable income might include lease cancellation payments or tenant-paid owner expenses.
Related: Tax On Rental Income: How Much Tax Do You Owe?
The recent changes to 1099 requirements emphasize the importance of accurate reporting for landlords. Failing to report all rental income can lead to penalties, interest, or even audits. Keeping clear and organized records ensures that you comply with IRS regulations and claim all eligible deductions.
The best way for landlords to manage and report their rental income is to employ quality income and expense-tracking software like Landlord Studio.
Traditional methods like spreadsheets and paper are time-consuming to keep updated and prone to errors. Landlord Studio makes it easy. Digitize receipts at the point of sale, connect your bank accounts to reconcile transactions in real time, and use our online rent collection system to automate the entire rent collection and income tracking process.
At the end of the year, you can share your rental property accounting information with a tax professional, you can export financial data in any of our accountant-approved reports including our powerful Schedule E report.
Once you reach the 1099 for rent threshold, our payments partner will provide you with a 1099-K form to simplify your tax filing preparations.
Before you do anything with your 1099 for rent payments, consider the tax deductions you may qualify for. A tax professional will ultimately determine which tax deductions make the most sense, but it’s important to be aware of those that exist. Some common deductions include:
Find out more about common landlord tax deductions
The IRS’s phased approach to the new 1099-K reporting thresholds means that landlords need to stay vigilant about their rental income reporting. Regardless of whether you receive a Form 1099-K, it’s your responsibility to report all income and comply with tax laws.
By collecting rent payments with Landlord Studio, landlords and property managers can eliminate any guesswork and streamline their end-of-year tax filing.
Our powerful rent collection tools automatically track all of your rent payments for you and easy-to-use accounting tools make expense management as simple as possible. When it comes to tax time, instantly generate any of over 15+ customizable reports including a P&L and purpose-built Schedule E report.
Make filing taxes easier than ever with property management and accounting tools designed for you. Create your free Landlord Studio account today.
Landlord Studio is an easy to use property management and accounting software designed for landlords.
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