Landlords who do not comply with the IRS requirements for reporting rental income can face substantial penalties. Tax statements and 1099s play an important role in determining the accuracy of your IRS submissions.
As a landlord, you must report all the income and expenses related to your investment properties at tax time, even if your rental business is running at a loss.
An accountant or property manager can assist you with filing 1099 forms, but you should still keep reading to learn more about these important documents.
Understanding Tax Statements and 1099s
Tax statements are similar to the monthly owner statements you might receive from a property manager. They're important for rental income reporting as they list all the income and expenses associated with your rental properties.
You must declare all types of income related to rental units on Form 1040, i.e., your personal income tax return. This includes things like:
- Rent collected
- Parking and laundry fees
- Security deposits
- Penalties for late payments
It's important to cross-check your annual tax statement against your monthly owner statements to ensure they correspond.
The IRS 1099 forms are for recording amounts paid out during the tax year. There are two types of 1099 forms that apply to landlords.
1099 MISC
This form documents all the rent received during the year. You will usually receive these forms from your property manager.
1099 NEC (non-employee compensation)
Landlords must fill out a 1099 NEC form for any vendor or contractor they've paid more than $600 during the tax year. These forms only apply to services rendered, so you don't fill out a 1099 when you buy things from a retail outlet.
However, if a contractor charges you for materials used while carrying out their duties, you must include this amount on their 1099 form.
About Tax Deductions for Landlords
Many expenses related to rental properties are tax deductible, so be sure to record them all on your tax return. These expenses include:
- Property management fees
- Marketing costs
- Cleaning fees
- Repairs and maintenance costs
- Property taxes
Remember, you must have supporting documents for every expense you want to deduct from your taxable income.
Additional Landlord Tax Obligations in California
In California, the state taxes all profits earned from renting out real estate. Residents pay tax on all their income, and non-residents must pay tax only for properties located in California.
You can deduct taxes you pay to the IRS before determining your gross profit for the year and paying your state tax.
Boost Your Profits and Simplify Tax Time
Tax statements and 1099s are vital for ensuring tax compliance and avoiding penalties. You'll receive 1099s from your property manager, and you must fill them out for contractors who you'd paid more than $600 for the year.
Do you need a little help figuring out your taxes? PMI Central Valley can assist you with expert advice to ensure you reap the benefits of allowable deductions thanks to effective property tax management.
We will also ensure your rental properties remain profitable with our comprehensive range of property management services. Discover the convenience of working with our experienced team today.
