Tax Reminder for Landlords in 2023: Report $600 or More in Rent Income
FOR REALTORS/LANDLORDS: December 2022 Substack Exclusive (Part 2 of 2)
By Shamontiel L. Vaughn, Go4Rent Staff Writer
Writer’s note: On Christmas 2022 weekend, the Internal Revenue Service announced a delay in reporting thresholds for third-party settlement organizations. Although the $600-and-up reporting was set to take effect for this year’s tax season heading into 2023, third-party settlement organizations have been told their transition is extended.
"The IRS and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan," said Acting IRS Commissioner Doug O'Donnell via press release. "To help smooth the transition and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes. The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements."
Read on for what’s to eventually come.
For landlords who may have missed the tax reporting memo, the Internal Revenue Service now requires landlords (including Airbnb hosts) to report all rental income that exceeds $600. Previously, landlords reported this income if it exceeded $20,000. However, the American Rescue Plan Act of 2021 is making short-term renters (or property owners who may have started renting toward the end of the year) check their tax forms a little closer.
Recommended Read: “Avoid Property-Owning Expense Headaches This Tax Season”
On Dec. 23, 2022, the IRS announced that calendar year 2022 will be treated as a “transition year” for this reduced reporting threshold of $600. And for property owners who are accepting rental payments via Venmo and PayPal, expect to receive a 1099-K by January 31 for any earnings over $600. (Zelle does not issue a 1099-K.)
While the latter third-party settlement organizations (TSPOs) like Venmo and PayPal may include non-related earnings such as family loans for bills, and/or birthdays or holiday gifts, the IRS is not requiring these transactions be reported. The IRS is specifically looking for the following:
Gross payments that exceed $20,000, AND
More than 200 such transactions
For returns for calendar years after 2021:
Gross payments for goods or services that exceed $600, AND
Any number of transactions
Additionally, the IRS is updating guidance to direct taxpayers to report other personal income scenarios on the Form 1040, Schedule 1, for tax year 2022.
Recommended Read: “Give Me Five…Ways to Collect Rent the Right Way”
Receiving a 1099-K Form
When landlords receive the 1099-K form, make sure all earnings are accurate. Verify that all housing funds received via checks, cash, debit cards, credit cards and store-value card transactions have been properly documented, including ones that may have not made it to the form.
Rental-related income also includes tenants reimbursing landlords for utilities (if the landlord did not disconnect all utilities beforehand to make sure they were in the tenant’s name before the move-in date). Keep track of both the utility bills and how the utility reimbursement was received.
Repairs, Upgrades and Condo Assessments
Before the tax deadline, landlords should gather all documents related to any repairs and upgrades. Of note, any home improvement project is considered a capital expense, not a repair. Both are still tax deductible but treated differently on tax forms.
However, while residing homeowners of condo associations cannot report COA assessments as a tax deduction, landlords who are renting their units out can deduct this “necessary expense.” Landlords will often include the assessments as part of the total monthly rental rate, so this is fairly simple to calculate at year-end. COAs just have to make sure these fees are being used to pay for the maintenance of common elements such as maintenance, roof repairs, and water and sewage bills. (A licensed tax professional will be able to clarify how to handle special assessments, but generally speaking, they may not be a tax write-off.)
For more information on how to file non-employment income related to landlord profits and expenses, visit IRS.gov or a licensed tax professional.
Do you want more information about Go4Rent’s services? Are you a Texas or Florida resident looking for a new home? Visit Go4Rent.com today!