Congress considers possible real estate tax burdens

Congress is considering two new tax burdens, both of which will have a significant effect on real estate and real estate owners. 

The first will mainly affect those who are landlords or those who own rental properties.  Anyone owning real estate that collects rental income will be affected.  If you have had any work done by anyone on your rental property, you would be required to fill out the proper 1099 forms for all service providers who performed work on the property.  This can include regular handymen, roofers, electricians, painters, etc.  You must have paid them at least $600 in the last calendar year.  Landlords would be charged a penalty for failing to fill out these forms.  Most people haven’t used these forms before and could require them to have to hire a tax professional for assistance.  This creates a financial burden on many.

The second proposal is to tax carried interest rates at a higher rate than the current capital gains rate.  This is when you go to sell an investment property and are taxed on any money you have gained.  For example, if you bought a property for $100,000 and later sold it for $200,000, you have gained $100,000, which is what you’d be taxed on.  This money is considered a capital gains, and taxed at a lower amount.  Congress is proposing to get rid of the capital gains rate.

The National Association of Realtors strongly opposes these two proposals.  Aside from not wanting to see clients negatively affected by this, the market is still in flux.  We’re still dealing with many foreclosures and home values decreasing across the country.  These proposals will only delay getting the market back to a stable position. 

We’re asking for you to write to your senators and Congress representatives to let them know how strongly you oppose this.  I’ve included a sample letter below, thanks to Creative Real Estate Investing Guide.  Please let them know your thoughts on this issue.  You can find the contact information for your State representatives here. I’d also love to hear any comments.  You can leave a comment or visit me online.

Sample letter:

Dear [decision maker name inserted here],

I am a property owner and your constituent. Reports indicate that Congress may vote this week on a spending and tax measure that could include two harmful tax provisions directly affecting real estate. I urge you to oppose these changes.

The first would require that ALL landlords provide an IRS Form 1099 to all contractors they do business with if they pay that contractor $600 or more in any given year. The proposal would apply even to those who own just one property. This is a trap for the unwary. Since many of my clients are “little guys” looking to supplement their income with real estate investments, any proposal requiring them to file Forms 1099 would impose new expenses and subject them to penalties they are ill-equipped to pay. Often these small landlords don’t use tax professionals; if adopted, this proposal could force them to incur the expense of hiring tax professionals. This proposal is burdensome and overreaching. Oppose it.

I also oppose a proposed change to tax carried interest at ordinary income rates. A real estate investment however, is fundamentally different from a hedge fund or financial instrument investment. An investment in real estate is nothing like playing with other people’s money. Real estate is a fixed asset held for a long period of time. The worst thing about this proposal is that, for the first time, a particular type of real estate investment gain would no longer qualify for capital gains treatment. This is a terrible precedent. Oppose it.

The real estate industry, in all its commercial, multi-family and individual investment categories, is still very fragile and likely to remain so. These proposals are ill-advised, inopportune and potentially destructive. Keep our real estate market recovery on track by opposing these measures.

Sincerely,

[Your name here]

Tips for renting out your home

If you’re having trouble selling your home, you might have considered renting it out instead.  This is a great way to continue to be able to pay your mortgage and be able to sell in a few more years once the housing market turns around.  However, if you are a first time landlord, the process of having tenants in your home can be traumatic.  And being the winter, it’s harder to find people who need a place now.  Here are some tips to find good renters quickly.

1. Make it look move-in ready.  If you were living there or did have tenants in there previously, just like selling a house, the home has to be in showing condition.  Tenants are like buyers and generally move in quickly once they find something they like.  Make sure the home is clean, smells good, and appliances/fixtures are in working order.  Clean carpets if they’re dingy or you had a pet in there previously.  Also, if you moved out but are going to be renting the home, make sure that you have appliances in there.  If you took the washer/dryer when you moved, a tenant is going to need one, too.  Put them in first.

2. Make it available to a wider audience.  Hanging signs and advertising on Craigslist can definitely help.  Generally, for the cost of only 1 month’s rent, putting your home in the MLS can attract a lot more tenants.  And they’ve already been pre-screened.  Most Realtors have been working with a lot more renters since the market turned around.  In order to find them a place, they will have a credit report and background check.  By listing the home in the MLS, you open the rental up to a lot more people, especially those working with agents already.

3. Know your competition and price accordingly.  Make sure you look at comps to know what similar homes are renting for in the area.  You don’t want to be the highest priced.  Make sure you base your price on location, amenities, schools, etc. 

4. Make it available.  Tenants usually don’t have much time to wait when their lease runs out and they need a new place.  If you’re not going to be around to show it, this can be another great reason to list in the MLS.  Your Realtor can show it for you and/or put on a lockbox so it’s always available for tenants to look at.  And you want to be more open to your tenants.  Allow pets.  You can always charge a pet deposit in case the pet does something to the home.  You’ll open it up to a lot more prospects this way.

Click here for more tips.

Again, if you do find someone interested, make sure to get a recent credit report and run a background check if possible.  Contact past landlords to make sure they’re good tenants and they paid on time.  Ask for the first month’s rent and security deposit from a cashier’s check, rather than a personal check.

If you need help renting your home and want some MLS exposure, please visit me online.