The Small Business Jobs Act of 2010 is amazingly complex legislation. Some pundits estimate that the provisions offering tax relief will actually ‘cost’ up to $12 billion. These tax cutting measures were I believe intended to offer incentive to businesses to make investments in plant, property, more employees and equipment. Which can be great if you are a substantial corporation. However the legislation also has some pitfalls to be aware. The one that I blog on today is particularly important for OWNERS OF RENTAL REAL ESTATE.
Specifically the new law will require recipients of rental income to ﬁle information returns using IRS Form 1099-MISC with the IRS and to service providers such as handymen, plumbers, electrician, etc. Reporting payments of $600 or more during the year for rental property expenses is mandatory with penalties for failure to comply effective January 1, 2011. There are limited exceptions to this reporting requirement. Members of the military or employees of the intelligence community who rent their primary residence on a temporary basis, individuals who receive only minimal (to be determined by the IRS) amounts of rental income, and individuals for whom these new requirements would cause a hardship (also to be determined by the IRS), would all be exempt from the reporting requirements.
Additionally the new law substantially increases the penalties for failing to timely ﬁle information returns with the IRS. The amounts of the penalties are broken down into a three-tier approach.
First-tier penalties will be assessed for ﬁling an information return after the ﬁling deadline but not more than 30 days after the due date. These will increase from $15 to $30 per occurrence; the calendar-year maximum increases from $75,000 to $250,000.
Second-tier penalties will be assessed for ﬁling an information return more than 30 days after its due date but before August 1. These will increase from $30 to $60 per occurrence and the calendar-year maximum will increase from $150,000 to $500,000.
Third-tier penalties will be assessed for failing to ﬁle before August 1. These will increase from $100 to $250 per occurrence; the calendar-year maximum will increase from $250,000 to $1.5 million.