1099-MISC vs 1099-NEC for landlords

1099 reporting confuses landlords for two reasons: the form changed in 2020 (so anything you remember from before then might be wrong), and the rules about who exactly is required to issue them depend on whether your rental activity is a trade or business. Below is what actually applies, in order.

The two forms

Since tax year 2020, what used to be a single form (1099-MISC) split into two:

• Form 1099-NEC reports nonemployee compensation. This is what you use for most service providers: contractors, plumbers, painters, leasing agents, attorneys, property managers.
• Form 1099-MISC reports a grab bag of other payments: rent paid to an owner (relevant to commercial tenants), royalties, awards, medical and healthcare payments, certain attorney's fees that go in box 10 instead of NEC.

For most landlords, the form you'll actually issue is the 1099-NEC, to vendors you paid for services.

Are you required to issue 1099s at all?

This is where landlords get tripped up. The IRS distinguishes between rental activity that rises to the level of a "trade or business" and rental activity that is merely an investment. Only the trade-or-business level triggers the 1099 obligation.

The IRS has not given a clean bright-line test, but case law and practice settle around these factors:

• Number of properties: One or two passive rentals are usually investment activity. A portfolio of several properties managed actively is usually a trade or business.
• Time involvement: Active management, advertising, screening, maintaining the properties yourself or through staff suggests trade or business.
• Continuity: Long-term, ongoing operation rather than a one-off rental.
• Whether you take the §199A QBI deduction as a real estate enterprise. If you do, you've effectively asserted you're operating a trade or business and the 1099 obligation follows.

If you're operating as a trade or business — and most landlords with three or more units are — you're required to issue 1099s. If you're a casual investor with a single rental, the requirement is debated and most CPAs say no, but some advise issuing them anyway as a safe-harbor practice.

The $600 threshold

You issue a 1099-NEC to any single payee you paid $600 or more during the calendar year for services. The threshold is per payee, not per project. If you paid the same plumber $400 in March and $300 in October, that's $700 total and triggers a 1099. If you paid two different plumbers $400 each, neither gets one.

The threshold is for services. Payments for goods (parts, materials, equipment) don't count toward the $600. If your invoice from a contractor shows $800 for labor and $1,200 for materials, only the $800 counts.

Who you do NOT have to 1099

• Corporations. If your vendor is a C-corp or S-corp, no 1099 required, with two exceptions: attorneys and medical/healthcare providers, who get 1099s regardless of entity type.
• LLCs taxed as corporations. Same rule. The W-9 you collected will show this.
• Vendors paid by credit card or third-party payment network. Those payments are reported by the card processor on a 1099-K, so issuing a 1099-NEC for the same payment would double-report it.
• Employees. Their compensation is on a W-2, not a 1099.

The W-9 process

Before you pay any vendor whose total for the year might cross $600, get a completed Form W-9 from them. The W-9 gives you their legal name, business name, address, taxpayer identification number (TIN), and entity type. If a vendor refuses to provide a W-9, you're required to start backup withholding at 24% on all subsequent payments. In practice this is enough leverage that almost every vendor sends the W-9 promptly.

Collect the W-9 before the first payment, not in January when you're trying to file. Vendors disappear, change addresses, and stop returning calls between November and tax season.

Filing deadlines

• 1099-NEC, copy to recipient: January 31.
• 1099-NEC, copy to IRS: January 31, paper or electronic.
• 1099-MISC, copy to recipient: January 31.
• 1099-MISC, copy to IRS: February 28 paper, March 31 electronic.

Late filing penalties scale by how late: $60 per form if filed within 30 days, $130 if by August 1, $330 after that, capped per year (but the cap is high enough that it rarely matters for landlords).

What to do if you missed last year

Issue the missed 1099s late. Pay the late penalty if it applies (often the IRS sends a notice rather than asking you to self-assess). The bigger risk is not the late filing penalty itself but the IRS's argument that without 1099s, the deduction for those payments should be disallowed. In practice the IRS rarely disallows deductions for missing 1099s alone, but the position is available to them on audit. Issuing the late 1099 is much better than ignoring it.

The streamlined workflow

1. Send a W-9 with every new vendor agreement.
2. Tag each vendor in your books with whether they're a 1099 vendor (services, not corp) or not.
3. In December, run a vendor spend report. Pull every 1099 vendor with annual totals over $600.
4. Verify the W-9 information against current address records.
5. Issue the 1099s by January 31. Keep copies indefinitely; the statute of limitations on payroll tax matters is long.

The annual filing takes a couple of hours if the W-9s are already on file. It takes a couple of days if they aren't, because you'll be tracking down vendors who finished a job in May and have moved on. The work is worth doing in May, not in January.