Some news from the IRS 
for California Homebuyers or Landlords 

Downpayment Help For Buyers? 
If you're thinking of firing your Landlord and buying a home, consider this:  As of January 1, 1998, the State of California has adopted the federal rules allowing a taxpayer to avoid the 10% penalty tax on early withdrawals of up to $10,0000 from an Individual Retirement Account (IRA) for a home purchase.  Also, the state has adopted the federal statutory scheme concerning the creation of Roth IRAs and the use of Roth IRA funds for a home purchase without penalty. (Revenue and Taxation Code 17058.8;17507.6)  Ask your tax advisor for details and advice.

Landlords Take Note !  
IRS Reporting Required By Nonresidential Tenants - In the latest attempt to trace income, the IRS now requires that nonresidential tenants report to the IRS any lease amounts paid to a landlord within a given calendar year.  The form to be used is a 1099-MISC information return, and is necessary whenever a tenant pays his nonresidential landlord over $600 annually. 

Nonresidential landlords that must be reported include limited liability companies, limited and general partnerships, other unincorporated associations, as well as any person serving as a manager or representative without a Real Estate Broker’s license.  A tenant, however, is not required to report rent payments to a corporation (which does not provide medical or health care services),or a licensed Real Estate Broker acting as a property manager. 

Tenants that are required to report include any tenant engaged in a trade or business, a non profit organization, or public housing agencies making rental assistance payments to non-corporate owners of housing projects.  Part of the reporting process requires that they provide the landlord, prior to January 31 following the end of the tax year, a copy of the 1099-MISC or at least a written notice with the amounts reported along with the name, address and phone number of the tenant.  

In order for the tenant to file the report he must have the landlord’s name, address and tax identification number (T.I.N.).  The IRS Form W-9 provides all the necessary information.  The landlord is required to provide this information on request of the tenant.  If the tenant is unable to obtain the necessary information for the report, the tenant is required to withhold 31% of the tenant’s rent payment if the IRS notifies the tenant that the T.I.N. that was provided is incorrect.  However, before the tenant can purposefully withhold the 31%, he must provide the landlord with a copy of the IRS notice to withhold within 15 days of receiving the notice.   

Topics from Previous Issues:

Tax Savings on Principal Residence