Do Landlords Need to File Form 1099-NEC?

Businesses use IRS Form 1099-NEC to report payments over $600 made to independent contractors. (Before 2021, Form 1099-MISC was used.) If you're a landlord, do you need to file IRS Form 1099-NEC to report payments you make to independent contractors, such as property managers and repair people? Surprisingly, until recently, it has never been clear.

Some people believed landlords didn't have to file 1099s at all, or needed to file them only if they wanted to qualify as real estate professionals for purposes of the passive loss rules. However, the IRS has made it clear that all landlords should file Form 1099-NEC to report payments to independent contractors.

Also, another reason a landlord should file Form 1099-NEC is to help the rental activity qualify as a business for tax purposes, instead of an investment activity.

Why Landlords Should File Form 1099-NEC

By filing Form 1099-NEC, you can qualify for several important tax benefits that are only available to businesses. For example, you might qualify for:

• the pass-through tax deduction, which can allow you to deduct up to 20% of your net rental income
• the home office deduction
• the deduction for the cost of attending rental-related seminars and conventions, and
• the start-up expense deduction.

Additionally, when your rental activity qualifies as a business, you get the best possible tax treatment when you sell your rental property. Any gains are treated as capital gains, which are subject to a lower tax rate than ordinary income.

If you sell the property at a loss, you may deduct the loss without limit against all your income. Such losses are limited to $3,000 per year if your rental activity qualifies as an investment activity, not a business.

Filing 1099s Can Help a Rental Activity Qualify as a Business

One of the most significant changes the Tax Cuts and Jobs Act brought about was the creation of a brand new tax deduction for pass-through businesses. Originally intended as a temporary deduction, the One Big Beautiful Bill Act in 2025 made this deduction permanent.

Pass-through business owners who qualify may deduct up to 20% of their net business income from their income taxes. Landlords whose rental activity qualifies as a business may take the pass-through deduction.

One Factor the IRS Uses to Determine If a Rental Activity Qualifies as a Business

In its final regulations on the pass-through deduction, the IRS discusses how to determine if a rental activity qualifies as a business. It says that:

"taxpayers should consider the appropriateness of treating a rental activity as a trade or business…where the taxpayer does not comply with the information return filing requirements."

"Information returns" means filing Form 1099-NEC. In other words, it might not be appropriate to treat a rental activity as a business if a landlord doesn't file all required Forms 1099-NEC.

This is something the IRS has never said before. So, now we know: Landlords should be filing 1099s. Failure to do so is a mark against you if the IRS ever questions whether your rental activity is a business.

When You Need to File Form 1099-NEC

Fortunately, filing Form 1099-NEC isn't an onerous requirement. The basic rule is that you must file a 1099-NEC form with the IRS if you pay an unincorporated independent contractor $600 or more during a year for rental-related services. Starting in 2026 (that is, for payments made in 2026 and later), the threshold amount for filing Form 1099-NEC increases to $2,000. This amount will be adjusted for inflation each year in $100 increments. (Under current law, the filing requirements don't apply to corporations.)

It makes no difference whether the sum was one payment for a single job or the total of many small payments for multiple jobs. This includes payments to property managers, repair people, and anyone else who performs services for your rental and isn't your employee.

Calculating Payments Made to an Independent Contractor

In calculating whether the payments made to an independent contractor total $600 or more during a year, you must include payments you make for parts or materials the independent contractor used in performing the services. For example, if you hire an electrician to rewire a rental building and he charges you separately for the electrical wiring and other materials he installs, the cost must be included in the tally.

File 1099-NEC If You Pay by Cash, Check, or Direct Deposit

You need to file Form 1099-NEC only if you pay an independent contractor $600 (2025 figure) or more by cash, check, or direct deposit during the year.

If you pay an independent contractor through an online payment service like PayPal, credit card, or any other type of electronic payment, you don't need to file a Form 1099-NEC reporting the payment to the IRS. PayPal or the other payment service might have to report the payment, but this isn't your problem.

How to File Form 1099-NEC

Many landlords pay accountants or bookkeepers to file Form 1099-NEC for them. However, it's not difficult to complete and file the 1099-NEC forms yourself using tax preparation, accounting, or property management software. You can also order paper copies of the 1099-NEC forms from the IRS and complete them by hand (but not if you're required to file the forms electronically, see below).

Form 1099-NEC contains five copies. These must be filed as follows:

• Copy A, the top copy, must be filed with the IRS no later than February 1 of the year after payment was made to the IC. If you don't use the remaining two spaces for other ICs, leave those spaces blank. Don't cut the page.
• Copy 1 must be filed with your state tax department if your state has a state income tax. The filing deadline is likely February 1, but check with your state tax department to make sure. Your state may also have a specific transmittal form or cover letter you must
• Copy B and Copy 2 must be given to the worker no later than February 1 of the year after payment was made.
• Copy C is for you to retain for your files.

Starting in 2024, you must file all 1099 forms electronically if your rental business files 10 or more returns of any kind. The IRS has created an online Information Returns Intake System (IRIS) that you may use to e-file Form 1099s without any special software. To use IRIS, you must obtain a Transmitter Control Code (TCC) from the IRS. For details, visit "E-file information returns with IRIS" on the IRS website or see IRS Publication 5717, Information Returns Intake System (IRIS) Taxpayer Portal User Guide.

Penalties for Failing to File a 1099-NEC

The IRS can impose monetary penalties on landlords who fail to comply with the reporting requirements. The penalty ranges from $50 to $310, depending on how quickly you fix the error by filing the 1099-NEC.

Complying with this requirement might help you avoid future problems with the IRS. Here's why: The IRS has an Automated Underreporter program in which IRS computers match information that landlords report on Schedule E about expenses paid with the Form 1099-NECs the landlords file reporting payments to independent contractors. If you claim a deductible expense for a payment to an independent contractor, but haven't filed the required Form 1099-NEC, the IRS might send you a notice asking you to explain the discrepancy or pay additional taxes. Your return could also be flagged for an audit.

Talk to a Tax Pro

For information about tax deductions for landlords and tax tips in general, get Every Landlord's Tax Deduction Guide, by Stephen Fishman (Nolo).

If you need more help, talk to a tax professional, such as a certified public accountant or a tax attorney. A tax professional can prepare tax returns or provide tax information, guidance, or representation before the IRS.