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Network NewsTax Time is Approaching – Important Reminders for Rental Property Owners and Managers


New 2011 Tax Reporting Requirement for Rental Property Owners

As a provision of the Small Business Jobs Act passed by Congress, rental income is now in the same tax category as a business or trade. As a result, recipients of rental income who make payments of $600 or more to a service provider (such as a plumber, painter, electrician) are now required to file a Form 1099-MISC with the Internal Revenue Service (IRS) and with the service provider for all payments made beginning January 1, 2011.

For example, if you pay your gardener $1,200 and your handyman $900 to take care of your rental property, you will need to issue a Form 1099 to both. This will require that you have the name, address, and social security number of each service provider. In that regard, you should have each provider complete a Form W-9 which will provide you with the required data. Important: for payments made in 2011, the Form 1099-MISC must be filed no later than January 31, 2012.

Non-Resident Withholding Requirements for Property Management Companies

The California Franchise Tax Board (FTB) requires that property management companies who collect residential rent for out-of-state owners are required to withhold and remit seven (7%) percent of the rent when the rent exceeds $1500 for the calendar year.

The FTB guidelines allow the withholding agent (the management company) to use a reasonable method to calculate the total amount withheld. The management company for instance may deduct its management fee and other property expenses and then calculate the required percentage withheld. Of course there are required forms to do so (including filing for a waiver or exemption) and the links to those forms and other information can be found by going to http://www.ftb.ca.gov/businesses/index.shtml#Filing.

Use Tax Reporting for Both Owners and Management Companies

For years, California residents have been required to pay a use tax (aka sales tax) when they purchase products from retailers outside of California. In an attempt to enforce this existing law, the California Board of Equalization (BOE) announced in late 2009 it will require any California resident with gross receipts over $100,000 to register with the BOE as a "qualified purchaser" even if individual property owners and management companies have not or do not plan to purchase goods from retailers outside of California.

Here is how it works for CAA member owners and managers: If a property management company facilitates an out-of-state product order on behalf of a property owner and the invoice from the retailer comes to the owner who will directly pay for the purchase, then the owner must report and pay the use tax.

If the management company makes the purchase and then the owner reimburses the management company, then the management company is liable for reporting and paying the use tax. Either way, if both the owner and management company have gross receipts of more than $100,000 per year, both need to register with the BOE as "qualified purchasers." Complete information on this requirement can be found by visiting http://www.boe.ca.gov/sutax/sutprograms.htm

Final filing date is Monday, April 18 – Since Friday, April 15, is a legal holiday in Washington DC (Emancipation Day), the IRS has announced that taxpayers nationwide have until the following business day, Monday, April 18, 2011 to timely file returns and pay taxes. California will accept as timely, tax returns and payments received on April 18.

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Naylor, LLC
Naylor, LLC
California Apartment Association
980 Ninth Street, Suite 200 | Sacramento, CA 95814
Phone: 800.967.4222 | Fax: 877.999.7881
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