Do you own Fremont rental property? Are you aware of the new Internal Revenue Service requirement that you are required to send an IRS form 1099 to any vendor to whom you paid a minimum of $600 during the year. While investors with a large number of rental units have been required all along to issue 1099s, the Small Business Mobs Act of 2010 (HR 5297) was expanded to include all property owners no matter how small.

If you own rental property in Fremont or any were else you now are legally obligated to obtain certain information from your vendors – name, address, Social Security or Tax ID number – and report the amount paid to the IRS. The requirement takes effect with the 2011 tax year so begin gathering the information now to make things easier at year end – and to be sure you have all the relevant information should a vendor leave the area, change phone numbers, etc.

This requirement applies to all independent contractors/workers such as plumbers, electricians, handymen, gardeners, accountants – basically all service providers who provide a service in relation to the rental property you own. $600 triggers the requirement even if it is cumulative over several contracts – say $400 for one job, $350 for another and $200 for another for a total of $950 to that vendor. You would need to provide a 1099 at year end.

Exceptions

The law provides exceptions for individuals who can show that the requirement will create a hardship for them. The IRS is directed to issue regulations on this, but has not done so yet, so there is currently no guidance on what constitutes sufficient hardship to qualify for the exception or how a taxpayer would demonstrate that hardship.

The law also contains an exception for individuals who receive rental income of “not more than a minimal amount.” Again, the IRS is directed to issue regulations to determine what constitutes “not more than a minimal amount” but has not done so yet.

If such guidance is not forthcoming before Jan.1, all individuals who receive rental income should start keeping records of payments to service providers so they are prepared to issue 1099s in 2012.

The law also contains an exception for members of the military or employees of the intelligence community if substantially all their rental income comes from renting their principal residence on a temporary basis.

Information Return Penalties

Taxpayers should also be aware that in addition to creating a new reporting requirement, the act increases the penalties for failure to file a correct information return. The first-tier penalty increases from $15 to $30; the second-tier penalty increases from $30 to $60; and the third-tier penalty increases from $50 to $100. For small business filers (with average annual gross receipts under $5 million), the calendar-year maximum increases from $25,000 to $75,000 for the first-tier penalty; from $50,000 to $200,000 for the second-tier penalty; and from $100,000 to $500,000 for the third-tier penalty. The minimum penalty for each failure due to intentional disregard increases from $100 to $250.

Since it is now early 2011, it is a good time to make sure your systems and records are in place to allow you to collect the necessary information throughout the year to enable you to complete the forms at year end in a timely manner. For free property managment software to help with your rental property you can go to my website www.ClydeBrownHomes.com and click on the investor tab and get a free program to manage all your rental units and tenants.

Thank you for taking the time to read the information I have made available to you. This information is brought to you by your Fremont real estate expert Clyde Brown.  If you are considering buying or selling property, planning to relocate, looking for Fremont homes for sale, or looking for any other information about real estate in the Fremont real estate market, or the surrounding areas, please visit the most complete website dedicated to everything real estate related www.ClydeBrownHomes.com.

If you or someone you know are in need of a competent and experienced Bay Area Realtor, or have real estate or mortgage related questions, please feel free to contact me I will be more than glad to answer your questions. Call me at 800-839-0665 or email me at Clyde@ClydeBrownHomes.com. For all your East Bay cities needs including Fremont, Newark, Union City, Hayward, Oakland, Santa Clara, Milpitas, Dublin, Livermore, Pleasanton, and San Ramon. Clyde Brown Legacy Real Estate & Associates.