Rent paid by tenants to their landlords is taxed according to applicable Internal Revenue Service rules. In some cases, certain types of tenants must provide IRS Form 1099 to landlords in accordance with IRS regulations. 1099 forms are informational returns issued by businesses to taxpayers, as well as sent to the IRS, that provide the details of significant taxable transactions. Tenants should only issue landlords 1099s if rent payments or transactions relate in some way to their business or trade, though.
Commercial Properties and 1099s
Property rental leases establish how long properties may be rented, monthly rent, landlord services, what maintenance is the tenant's responsibility and the division of expenses. Commercial property leases are more complicated than residential leases due to longer terms and the business use of subject properties. A commercial lease may tie monthly rents to business performance or other factors and division of responsibilities between tenants and landlords may also be more complicated. Only tenants in commercial leases must provide IRS Form 1099 to their landlords.
Form 1099 Basics
When preparing tax returns ensure you gather documents supporting your income and expenses, such as a 1099 given to a commercial property landlord. Taxpayers generally must receive copies of 1099s they're due by January's end. Whenever it's required, IRS Form 1099 is issued by the payer obtaining goods or services, such as a tenant. If you issue a 1099 to your landlord ensure it's also submitted to the IRS by the February's end if paper filing or by April 1st if you're filing electronically.
Commercial lease tenants must issue landlords 1099s when their transactions meet cost and business activity minimums. Use only IRS Form 1099-MISC when issuing one to a landlord. Tenants paying $600 or more to landlords must provide 1099s except when rent payments are made to real estate agents. List rent paid to your landlord in Box 1 of the 1099-MISC. Use IRS Form W-9 to obtain your landlord's address, Social Security number or tax identification number and enter it all into your landlord's 1099 as well.
Ensuring IRS Compliance
Consult with an attorney prior to entering into a commercial lease to ensure it complies with relevant laws, as well as to review any IRS requirements. Businesses paying commercial leases should also consider consulting with certified public accountants to ensure their taxes are properly filed. 1099s are important records and should be kept for at least seven years in case of IRS audit. IRS rules may change in response to new laws, and taxpayers should always seek expert advice whenever they have tax questions.