1099-INTs for Private Money Lenders: What Real Estate Investors Need to Know

If you’ve borrowed money from private lenders to fund your real estate deals, you may need to issue them a Form 1099-INT for the interest you paid. However, not all lenders require a 1099-INT, and understanding the rules can help you stay compliant with IRS regulations while avoiding unnecessary filings.

Who Needs a 1099-INT?

A 1099-INT is required if you paid $10 or more in interest to an individual or entity that is not a corporation. This typically applies to private individuals who loan you money, including friends, family members, or other real estate investors acting as private money lenders.

• Example: You borrowed $50,000 from an individual investor and paid them $5,000 in interest over the year. Since the interest exceeds $10, you must issue a 1099-INT to that lender and report it to the IRS.
  

Who Is Exempt from a 1099-INT?

There are several situations where you do not need to issue a 1099-INT, including:

1. Corporations – If your lender is an LLC taxed as an S-corp or C-corp, you are not required to send them a 1099-INT. Most hard money lenders fall into this category because they are structured as corporate entities.

2. Banks and Financial Institutions – Traditional lenders, such as banks and credit unions, handle their own tax reporting and do not require a 1099-INT from borrowers.

3. Payments Made to a Foreign Lender – If the lender is not a U.S. resident and does not conduct business in the U.S., different tax rules apply.
   

Hard Money Lenders vs. Private Money Lenders

The key distinction to understand is that hard money lenders are typically professional lending businesses structured as corporations or partnerships, so they do not require a 1099-INT. Private money lenders, on the other hand, are often individuals lending personal funds, meaning they do require a 1099-INT if they meet the threshold.

• Example of a Private Lender: You borrow $75,000 from a retired investor who lends personal funds as a side business. You pay $7,500 in interest, so you issue them a 1099-INT.

• Example of a Hard Money Lender: You secure a $100,000 loan from a hard money lending company structured as an LLC taxed as an S-corp. No 1099-INT is required.
  

How to File a 1099-INT

To stay compliant, follow these steps:

1. Gather Information – Obtain the lender’s legal name, address, and Taxpayer Identification Number (TIN) using Form W-9.

2. Fill Out Form 1099-INT – Report the total interest paid in Box 1.

3. Submit to the IRS – File Copy A of the form with the IRS by January 31st.

4. Provide to the Lender – Send Copy B to your lender for their tax reporting.
   

Stay Compliant with Private Lending Tax Rules

Ensuring you issue 1099-INTs correctly is an important part of tax compliance for real estate investors who use private money lenders. By knowing when and to whom you need to send this form, you can avoid IRS penalties and keep your private lending relationships in good standing.

Need help with 1099s or other real estate accounting tasks? Seeds Courses is here to help you navigate the complexities of real estate finance with ease!

Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Please consult with a qualified tax professional or visit the IRS website for official guidance: IRS 1099-INT Instructions.