It’s tax season, so we figured it’s a good time to remind members of two important tax-reporting requirements that can have rental housing providers seeing red if not done correctly.
1099 reporting
A business that purchases services in excess of $600 from an unincorporated vendor must report that payment to the IRS and to the service provider on a Form 1099.
With limited exceptions, payments made to corporations are excluded from 1099 reporting. A “business” includes a landlord or management company that is engaged in rental real estate as its trade or business for profit.
Don’t miss your deadlines. Late-filing penalties can grow very large, depending on the filing date and number of returns. Click here for more information.
Withholding for out-of-state owners
California property management companies that manage and collect rent for California properties owned by clients residing outside the state must withhold a portion of the rental funds on a quarterly basis and forward those funds to the Franchise Tax Board along with the required FTB forms.
When rental payments are greater than $1,500 per calendar year, the management company must withhold 7 percent of the rent collected. The withholding rate for foreign clients is higher.
A number of exemptions exist, such as for corporations and partnerships qualified to do business in California with a permanent place of business in California, as well as out-of-state owners who have received written authorization from the FTB waiving the withholding.
Click here for more information about the Franchise Tax Board resident and nonresident withholding requirements and additional exemptions.