Rental Property Contractor Compliance

[Kevin Davis]

I am going to be having contractors on my properties performing work for me. I want to make sure I have all of my ducks in a row in the case of an IRS audit down the road.  Am I missing anything I need to require?

- W-9 with valid EIN

- Proof of Insurance/Certificate of Insurance

- Receipt upon payment, or fill out a receipt and have them sign

- Send 1099 in January if the contractor is paid over $600 in the year for performing services

[John Mocker]

Kevin,

For the contractors you use, you should have contracts in place.  In the contract you can spell out Insurance requirements.  At minimum they should have Liability and Workers Comp.  You should specify that any subcontractors they use have to meet those requirements also.  Having them name you as an Additional Insured is also a common requirement.  There are other contractual requirements that we see that you may or may not want to incorporate:

1. that the contractors Insurance is Primary and Non-Contributory 

2. that the contractors Insurance waives subrogation against you

3. that the contractor holds you harmless and indemnifies you

4. that his Insurance company give you 30 day notice before cancelling any of the policies.

Some of these requirements may have a cost to the Contractor and would be passed on to you most likely.  You may want to specify limits of coverage ($1,000,000 for Liability coverage for example).