I've been renting a room in a house in California, USA for a few years. Each month, I pay an advance payment to the homeowner. The rent is currently $650/month, and he wants cash. Legally speaking, am I required to report those cash payments to the IRS? And, does the IRS have a webpage that has instructions or regulations regarding these cash transactions?
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Does the landlord give you a receipt for those payments?– PyrotechnicalCommented Feb 4, 2021 at 21:09
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There's a requirement to file a 1099-MISC when a business pays rent, except when the property owner is a corporation, but I've never heard of any such requirement for a residential tenant. I don't think the method of payment makes a difference, either.– Nate EldredgeCommented Feb 4, 2021 at 21:33
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@NateEldredge How does the type of entity the owner is affect anything the tenet needs to do?– George WhiteCommented Feb 4, 2021 at 21:39
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1@GeorgeWhite: It says so in the 1099-MISC instructions, on page 2 under Exceptions. "Payments for which a Form 1099-MISC is not required include all of the following: Generally, payments to a corporation." I think the theory is that a corporation will have robust accounting procedures that would make it more difficult for it to conceal its income. There is another exception if the rent is paid to a property manager or real estate agent, instead of to the owner directly.– Nate EldredgeCommented Feb 4, 2021 at 21:42
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@Pyrotechnical There's a receipt. We both agree that I write the receipt, and sign my name, he will sign his. And then, I take a photo of the receipt, and send it to him via text message.– dominoCommented Feb 5, 2021 at 5:40
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1 Answer
In general, a person who pays for goods and services with cash is not obligated to report the payments to the IRS (thus simplifying your trip to the hardware store, purchases from a vending machine, etc.). There are laws requiring reporting of receipt of cash 31 USC 5313 which applies to banks, which are regulated, but Ordinary Joe is not subject to this law. Receipt of over $10,000 in one or more related transactions, in the course of business, must be reported under 26 USC 6050I. The IRS also says "File Form MISC-1099 for each person to whom you have paid during the year" if you pay at least $600 in rents, prizes awards, "other income payments", medical and health care payments and so on. Later, they list exceptions including payments for merchandise, telegrams, telephone, freight, storage, and similar items; payments of rent to real estate agents or property managers. The instruction book then says, even more specifically,
Report on Form 1099-MISC only when payments are made in the course of your trade or business. Personal payments are not reportable.
And then they repeat the exception for merchandise: but you're not paying to a real estate agent or a property manager, so that exception is not relevant (but the fact that the payer reports only in case it is a business covers your situation).
