“Rental Income Recipients Have to Report Payments Over $600 to the IRS in 2011 ” by Frank C. Carnahan
Persons engaged in a trade or business must report payments to another person of $600 or more in any tax year to the IRS. The 2010 Small Business Act provides that solely for purposes of Code §6041(a), and except as provided in §6041(h) (2), a person receiving real estate rental income is considered engaged in a trade or business of renting property, and consequently must report payments of $600 or more to a service provider, e.g., plumber, painter, or accountant, to the IRS and to the service provider (typically using Form 1099-MISC), effective in 2011. §6041(h)(2) exceptions include de minimus rental income under IRS regulations, active military or intelligence service members, and where “substantially all” the rental income results from renting the individual’s principal residence on a “temporary” basis. The terms “substantially all” rental income and “temporary” basis are not defined and leave many situations open to question, e.g., renting while trying to sell a home for an extended period due to current market conditions. You must obtain the recipient’s tax id number for the information return, because failure to provide the number results in a substantial penalty.