Many landlords have heard that they must send Form 1099‑NEC to anyone who works on their rental property and is paid over a certain amount. In reality, the reporting rule is narrower: it applies when the payments are made in the course of a trade or business under Internal Revenue Code (IRC) section 6041, not simply whenever someone owns a rental.

When a landlord generally must file Form 1099‑NEC

For a landlord, Form 1099‑NEC is usually required only when all of the following conditions are met:

  1. The rental activity is operated as a trade or business (not merely as a passive investment).

  2. The landlord pays a non‑employee (such as a handyman, plumber, cleaner, or property‑management contractor) at least the current IRS reporting threshold for services during the year. For many years this threshold has been $600. Starting with the 2026 tax year, current guidance reflects an increased $2,000 threshold, with future years adjusted for inflation, so it is important to confirm the exact amount in the Form 1099‑NEC instructions for the filing year.

  3. The payee is an individual, partnership, or certain LLCs, rather than a C corporation or S corporation, which are generally exempt from 1099‑NEC reporting.

  4. The landlord pays by cash, check, ACH, bank transfer, Zelle, or similar direct payment method, rather than by credit card or a third‑party settlement organization. Credit‑card and third‑party settlement payments (for example, PayPal “Goods & Services”) are normally reported by the payment processor on Form 1099‑K, so the landlord does not issue 1099‑NEC for those amounts.

In short: if the rental is truly being run like a business, and the landlord pays a non‑employee contractor over the applicable threshold by a direct method, 1099‑NEC is generally required.

What “trade or business” means in this context

The phrase “trade or business” appears in many Code sections, including:

The Code does not provide a single, universal definition. Instead, courts and IRS guidance rely on case law.

In Commissioner v. Groetzinger, 480 U.S. 23 (1987), the Supreme Court addressed the meaning of “trade or business” under section 162. The Court held that an activity is a trade or business when:

  • the taxpayer is involved with continuity and regularity, and
  • the taxpayer’s primary purpose in engaging in the activity is to earn income or profit.

If the activity is sporadic, casual, or mainly for personal pleasure, it is not a trade or business. The Court also cautioned that its interpretation was tied to the sections before it and that the term can appear in different settings, but the “continuity, regularity, and profit motive” test has become the standard reference point in tax practice.

How section 199A’s rental safe harbor fits in

Section 199A’s qualified business income deduction is generally available only for income from a section 162 trade or business. Treasury’s regulations say that, in general, “trade or business” for 199A means a section 162 trade or business, and the IRS issued Revenue Procedure 2019‑38 to create a safe harbor specifically for rental real estate enterprises.

Under that safe harbor, a rental real estate enterprise can be treated as a trade or business for 199A purposes if the owner (or a pass‑through entity):

  • maintains separate books and records for the rental enterprise,
  • performs at least 250 hours of rental services per year in the relevant measurement period, and
  • keeps contemporaneous records of the services performed (hours, dates, who did the work) and attaches a statement to the return.

These conditions help taxpayers demonstrate that their rental activity is being operated like a real business. However, the safe harbor is written specifically for section 199A. It does not automatically settle whether a landlord has a 1099‑NEC filing obligation under section 6041. It is a strong indicator, but not a substitute for the underlying trade‑or‑business analysis.

Practical indicators for landlords

Because there is no rigid, one‑size‑fits‑all test, landlords must look at their own facts and circumstances when deciding whether a rental is a trade or business. The following factors usually support treating a rental as a trade or business:

  • The landlord (or a property manager under the landlord’s direction) performs regular, ongoing tasks such as advertising vacancies, screening tenants, negotiating leases, collecting rent, handling repairs, managing turnover, and keeping detailed books and records.

  • The landlord has multiple units or properties and treats the activity as a continuing enterprise rather than an occasional investment.

  • The landlord spends substantial time during the year on rental operations, even if also working a W‑2 job, and clearly runs the activity with a profit motive.

  • The landlord relies on rental income as a meaningful part of overall livelihood and organizes the activity in a business‑like way (separate bank accounts, written policies, use of W‑9s and 1099s where appropriate).

By contrast, the following factors tend to suggest that the rental is closer to a passive investment rather than a trade or business:

  • The landlord owns a single long‑term rental with very little turnover and performs only minimal tasks during the year.

  • The landlord does not advertise, negotiate leases, or handle day‑to‑day issues, and instead mostly waits for rent checks to arrive.

  • The property is held primarily for long‑term appreciation, and the landlord does not view or manage it as an operating business.

  • The landlord does not maintain separate records, does not track hours or activity, and rarely interacts with tenants or service providers.

It is important to emphasize that none of these facts, by themselves, automatically decide the issue. Someone with only one property can still be in a trade or business if involvement is intensive and continuous. Someone with a full‑time job can still operate rentals as a trade or business. The Supreme Court’s test always comes back to how the activity is carried on and why.

A simple way to think about it

  • If you are truly running your rentals as a business – with regular tenant management, repairs, bookkeeping, and a clear profit motive – you should expect to have the usual business reporting duties, including issuing Form 1099‑NEC to qualifying contractors.

  • If you are mainly holding property as an investment with very little day‑to‑day activity, your 1099‑NEC obligations are more limited, but you may also miss out on some of the tax benefits that come from being treated as a business.