Tenant Screening

2012 Tax Deductions for Landlords

As 2012 is wrapping up, so is the tax year. It’s a good time to focus on the tax deductions for landlords you can claim as a rental property owner.

Below are seven key 2012 tax deductions for landlords rental property owners can look forward to:

1) Mortgage Expenses

Rental property owners can write off the interest paid on their mortgage. The mortgage company will send you a Form 1098 that tells how much interest you paid the previous year.

Unfortunately, one-time expenses at closing — such as commission and appraisal — aren’t fully deductible in the year that you pay them. Instead, you can amortize them over the life of the loan, still leaving you with a hefty deduction.

2) Repairs

When something breaks, you have to fix it and the landlord foots the bill. The good news is that repair and maintenance costs are tax deductible.

The distinction is a repair that keeps your property in good working order. If something breaks or could potentially break and you spend the money to replace or update it, the cost is considered tax deductible.

3) Travel Expenses

Keep tabs on any time you travel to the property to make improvements or collect rent. On your taxes, you can either take a standard mileage rate (55 cents per mile in 2012), or deduct actual expenses including gas, upkeep and repairs.

4) Taxes and Preparation Fees

If you have someone else prepare your taxes, like attorneys or accountants, those expenses can also be written off.

5) Insurance and Losses

The cost of insuring the property can be written off along with any losses from casualties, like burglaries or natural disasters such as tornados, hurricanes or floods.

6) Lawn Care or Association Fees

If have a lawn service cut the grass or maintain the landscaping of your rental property, those expenses can be written off as well. Association fees that condo associations often use to cover lawn care, exterior maintenance and the upkeep and maintenance of other common areas are also deductible.

7) Depreciation

The IRS allows rental property owners to deduct depreciation of the value of a rental property. The assumption is that since property is useful for a long time, over that time, it wears out and is worth less money. You should not be taxed on the same value as when the property was purchased.

You calculate depreciation by adding up the total costs of the property and dividing it by the useful life of the property Anchor. For residential rental real estate, the useful life expectancy is 27.5 years. You would take the total value and divide it by the useful life to discover the depreciation.

For example, if you purchased a rental property for $120,000, you would divide that number by 27.5 for a depreciation of $4,545 per year.

Remember

As with all tax-related details, it is vital to keep excellent records to back up all your  tax deductions. If you are audited, you will get penalized and pay more because you don’t have the proper documentation. For further peace of mind, consult a tax professional to help you get the most tax deductions you deserve and organize your documentation.

 

The Protecting Tenants at Foreclosure Act

 Background 

The Protecting Tenants at Foreclosure Act of 2009 became effective on May 20, 2009. This new law protects tenants from immediate eviction by persons or entities that become owners of residential property through the foreclosure process and extends additional protections for tenants with U.S. Department of Housing and Urban Development Section 8 vouchers.2  The law is self-executing; no federal agency has authority to issue regulations implementing the law or to interpret the law. The law was originally set to expire on December 31, 2012 but The Dodd–Frank Wall Street Reform and Consumer Protection Act revised the Tenants Protection Act by adding a definition for the date of a notice of foreclosure and by extending its expiration date to December 31, 2014.

The fundamental purpose of the Protecting Tenants at Foreclosure Act is to ensure that tenants facing eviction from a foreclosed property have adequate time to find alternative housing. To that end, the law establishes a minimum time period that a tenant can remain in a foreclosed property before eviction. The law does not affect any state or local law that provides longer time periods or other additional protections for tenants.

 

Definitions

Bona Fide Lease or Tenancy 

A lease or tenancy is bona fide if the tenant is not the mortgagor or the parent, spouse, or child of the mortgagor; the lease or tenancy is the result of an arms-length transaction; and the lease or tenancy requires rent that is not substantially lower than fair market rent or is reduced or subsidized due to a federal, state, or local subsidy.

 

Requirements

Under the law, the immediate successor in interest at foreclosure must (a) provide bona fide tenants with 90 days notice prior to eviction and (b) allow bona fide tenants with leases to occupy property until the end of the lease term, except the lease can be terminated on 90 days notice if the unit is sold to a purchaser who will occupy the property.

1. Title VII of the Helping Families Save Their Homes Act of 2009. Public Law 111-22, effective May 20, 2009 (www.gpo.gov/fdsys/pkg/PLAW-111publ22/pdf/PLAW-111publ22.pdf). 2. www.gpo.gov/fdsys/pkg/FR-2009-06-24/pdf/E9-14909.pdf

and www.hud .gov/offices/pih/programs/hcv/about/fact_sheet.cfm#6

 

What is a Conditional Acceptance Letter?

A Conditional Acceptance Letter is a letter that specifies additional requirements such as additional deposit monies or that the tenant applicant has to meet to be accepted as a tenant.  The Fair Credit Reporting Act requires that a form of this conditional acceptance letter must be provided to any rental applicant you choose to accept with conditions if that decision is based solely or partly on information in a consumer report. Use our free conditional acceptance letter now.

The notice must include:

  • The name, address and telephone number of the Credit Reporting Agency (CRA) that supplied the consumer report, including a toll-free telephone number for CRAs that maintain files nationwide;
  • A statement that the CRA that supplied the report did not make the decision to offer a conditional acceptance and cannot give the specific reasons for it; and
  • A notice of the individual’s right to dispute the accuracy or completeness of any information the CRA furnished, and the consumer’s right to a free report from the CRA upon request within 60 days.
  • Disclosure of this information is important because some consumer reports contain errors.

The Conditional Acceptance Letter is required even if information in the consumer credit report was not the main reason for the increase in security deposit or rent or other adverse action. In fact, even if the information in the report plays only a small part in the overall decision, the applicant still must be notified.

 

What is a Denial Letter With Reasons?

A Denial Letter with Reasons is also known as an Adverse Action Letter with Reasons.  It’s very similar to the Denial Letter but it provides specific reasons for denial based on information in the applicant’s a consumer report. A form of this denial  letter must be provided to any rental applicant you choose to deny residency to if that decision is based solely or partly on information in a consumer report. While oral adverse action notices are allowed, written notices provide proof of FCRA compliance. Use our free denial letter with reasons now.

The notice must include:

  • The name, address and telephone number of the Credit Reporting Agency (CRA) that supplied the consumer report, including a toll-free telephone number for CRAs that maintain files nationwide;
  • A statement that the CRA that supplied the report did not make the decision to take the adverse action and cannot give the specific reasons for it; and
  • A notice of the individual’s right to dispute the accuracy or completeness of any information the CRA furnished, and the consumer’s right to a free report from the CRA upon request within 60 days.
  • Disclosure of this information is important because some consumer reports contain errors.

The Denial Letter with Reason is required even if information in the consumer credit report was not the main reason for the denial, the increase in security deposit or rent or other adverse action. In fact, even if the information in the report plays only a small part in the overall decision, the applicant still must be notified.

 

What is a Denial Letter?

A Denial Letter is also known as an Adverse Action Letter.  The Fair Credit Reporting Act requires that a form of this denial letter or adverse action letter must be provided to any rental applicant you choose to deny residency to if that decision is based solely or partly on information in a consumer report. While oral adverse action notices are allowed, written notices provide proof of FCRA compliance. Use our free denial letter now.

The notice must include:

The name, address and telephone number of the Credit Reporting Agency (CRA) that supplied the consumer report, including a toll-free telephone number for CRAs that maintain files nationwide;

A statement that the CRA that supplied the report did not make the decision to take the adverse action and cannot give the specific reasons for it; and

A notice of the individual’s right to dispute the accuracy or completeness of any information the CRA furnished, and the consumer’s right to a free report from the CRA upon request within 60 days.

Disclosure of this information is important because some consumer reports contain errors.

The Denial Letter or Adverse Action Notice is required even if information in the consumer credit report was not the main reason for the denial, the increase in security deposit or rent or other adverse action. In fact, even if the information in the report plays only a small part in the overall decision, the applicant still must be notified.

When Your Tenant Won’t Pay

There comes a point when apartment owners find that despite their best
efforts at resident screening, they will have to grapple with evictions and
collections in response to non-payment of rent.

The weak labor market is currently contributing to greater numbers of people
encountering difficulty with paying their rent compared to just eight years
ago—so owners beware.

Where evictions for nonpayment of rent is concerned, property owners should
first make sure they are thoroughly familiar with the local landlord-tenant
laws and regulations. Every jurisdiction has its own rules governing, for
example, the minimum number of days the rent is delinquent before late notices
can be sent out.

The company’s procedures should be to file the papers for a court date in
connection with an eviction as soon as that is permitted by law—whether or not
a payment plan is being worked out with the resident concurrently.

It is important to take action at the earliest possible opportunity because
each step in the eviction process can take time, and it can be at least
one-and-a-half to two months before the resident is evicted. If the resident
appeals, that will cause further delays. And if the property owner wins the
case, it will take at least another 15 to 30 days before the resident is made
to vacate the unit by the marshall.

Follow eviction rules closely

Property owners need to be consistent and regimented in complying with their
companies’ own rent payment rules and procedures, aspects of which may also be
contained in the lease agreements signed by residents. For example, after the
grace period, the notices need to be sent out.

There are absolutely times when residents have genuine and temporary
problems paying the rent. In such cases, the company can deviate from the rule
books and work with them to help them make the payments.

Property owners need to refrain from clearing out residents’ belongings too
early—a common pitfall when a resident skips the rent and moves out. If there
is no court order in place to evict them, the residents may want to be
reimbursed for the items. Landlords can clear the apartment and hold the
belongings in a separate location, but the danger is that things can be stolen.

The other aspect of evictions is collections. The accounts receivable of
residents who leave an apartment, but still owe back rent, may be sent to debt
collectors. The fact is, most property owners may be reluctant to go after
their residents for backrent. A study released by TransUnion late last year
finds that about half of property managers (46 percent) have had renters skip
out on their rents, with 19 percent having had that experience in the past
year. According to the study, which received 476 responses, only 46 percent of
property managers pursue residents who skip out of their apartments and leave
with unpaid rent or damages.

Steve Roe, vice president in TransUnion’s rental screening division, says it
is a mistake for property managers not to try to claim that bad debt. There are
two philosophies with regard to whether the account is turned over to the
collections agency. The first says that “if we have the wherewithal, let us get
a shot at going after someone in the first 30 days. We are not splitting the
recoveries with a collections agency.” The second school of thought says that
“the account should be turned over to a collections agency immediately. There
will be less time spent and aggravation on the part of your staff.”

Property owners can expect recoveries, on average, of 15 percent to 18
percent if the agency is doing its job correctly. The proportion of recoveries,
of course, also depends on the profile of the portfolio. For example, in the
case of affordable portfolios, recovery percentages may be less.

Collection agencies typically do not report to credit bureaus in the first
30 to 60 days of receiving the delinquent account. Individuals are more
inclined to pay if their accounts have not yet been reported to the credit
bureau, as they find it important to maintain their credit files.

Successful recoveries depend on four factors: the applicant screening
criteria of the property management company; the use of nationally licensed
collections agents; how effective the agency is in skip tracing, that is, in
locating the individual who skips out on the rent; and the initial conscientiousness
of the property management company in gathering vital information—such as
social security numbers, emergency contacts and places of employment—from the
resident.

When it comes to choosing a collections agency, it is important that the
company has a national reach. A little over half the states in the country
require collection agencies to be licensed or bonded in the state in which they
operate. So if the agency is not licensed in that state, it would not be able
to contact individuals who have moved there. Larger collection agencies may
also have the resources to pay for, and sophistication to obtain, national data.

Indeed, the reputation of the collections agency is a prime consideration
for the apartment firm. The apartment company should make sure the financial
security of the agency is sound—as there are cases in which collection agencies
collect on bad debt but do not remit the collections to the property owner.
Checking references for collection agencies is also critical.

Apartment companies may also want to make sure the collections agency does
not mistreat its customers. A professional and courteous manner on the part of
the staff yields better responses and results. Also, the apartment company
would “not want to see its names or our names in the papers. You must protect
the image of the agency and the client.

Obtain the information needed by the agency to do its job. And even more
important, get the accounts to the agency as soon as possible instead of
sitting on it.

Government seeks to sell foreclosures as rentals

The Obama administration said on Wednesday that it was soliciting ideas on how to turn the federal government’s inventory of foreclosed houses into rental properties that could be managed by private enterprises or sold in bulk.

The goal, the administration said, is to stabilize neighborhoods where large supplies of empty, foreclosed properties have hurt property values. In addition, the plan is an effort to clear the nation’s balance sheet of real estate holdings that, because they have been difficult to sell individually, have hung over the housing market and stunted sales of existing homes and new construction.

The Federal Housing Finance Agency, the Department of Housing and Urban Development and the Treasury Department are jointly requesting ideas for sales, partnership ventures or other strategies that would help to unload approximately 250,000 properties owned by Fannie Mae, Freddie Mac and the Federal Housing Administration. Those properties account for about half of all properties that have been foreclosed upon and are still awaiting resale nationwide.

As it considers the proposals, the government-sponsored enterprises that now own the houses will continue to offer individual properties for sale, Edward J. DeMarco, acting director of housing finance agency, said Wednesday. But the government says it believes that given the slow pace of those sales, it must find new ways in which properties can be pooled, sold and privately managed as rentals.

Greater flexibility in disposing of the houses will have other benefits as well, Timothy F. Geithner, the Treasury secretary, said. “Exploring new options for selling these foreclosed properties will help expand access to affordable rental housing, promote private investment in local housing markets and support neighborhood and home price stability,” he said in a statement announcing the new program.

While home prices have remain depressed since the 2008 financial crisis, rental prices have not come down. The Joint Center for Housing Studies at Harvard University reported in the spring that more than 10 million households — or one-quarter of all renters — pay more than half their income for housing, a record level.

“We have to find and promote new ways to alleviate the strain on the affordable rental market,” Shaun Donovan, secretary of the Department of Housing and Urban Development, said.

John Taylor, president of the National Community Reinvestment Coalition, said in an interview that an added benefit of such a program would be the creation of construction jobs for rehabilitation of the properties.

The Obama administration and Congress have been working on plans to wind down Fannie Mae and Freddie Mac, which the government took over in 2008 as losses on loans guaranteed by the agencies expanded.

Of the 248,000 homes owned by Fannie Mae, Freddie Mac and the F.H.A. at the end of June, 70,000 were listed for sale, said Corinne Russell, a housing finance agency spokeswoman. The remainder were not yet on the market or the agencies had already received an offer from a prospective buyer.

But it is possible that hundreds of thousands of more homes that are now in the foreclosure process could come into the possession of the federal government in the next few years, housing experts say.

“This is a call for innovation and an opportunity for businesses to not only make money and create jobs, but also provide affordable rental housing for those who need it and strengthen our communities at the same time,” said Senator Jack Reed, Democrat of Rhode Island, who has pushed for such a program.

Turning a tenant applicant down because of their credit report information? Know your legal obligations!

The FCRA requires you as the potential property manager/landlord to give an adverse action notice to each consumer whose credit report was used to deny their lease application. The consumer is also then entitled by the law to a free copy of their credit report.

What is an adverse action notice?

An adverse action notice informs an applicant that they have been denied credit, employment, insurance, or other benefits based on information in a credit report. The notice should indicate which credit reporting agency was used, and how to contact them.

All consumers are entitled to a free copy of their credit report if:

  1. They were denied or were notified of an adverse action related to credit, employment, insurance, a government license, or other government granted benefit within the last 60 days and a credit report was used in the decision process.
  2. They were denied a house or apartment rental or were required to pay a higher deposit than normally required within the last 60 days and a credit report was used in the decision process
  3. They certify that they are unemployed and intend to apply for employment within the next 60 days.
  4. They certify that they are a recipient of public welfare assistance.
  5. They certify that they have reason to believe their credit report contains inaccurate information due to fraud.

StarPoint Tenant Screening gives you the ability to print adverse action notices with each credit report. The notices allow the property manager/landlord to check off the reason for the denial. The letter also informs the consumer that they can contact StarPoint for a free copy of their credit report.

TransUnion Credit Report Codes

ECOA (Equal Credit Opportunity Act) Inquiry and Account Designators
A – Authorized user of shared account
C – Joint contractual liability
I – Individual account for sole use of customer
M – Account for which subject is liable, but co-signer has liability if the maker defaults
P – Participant in shared account which cannot be distinguished as C or A
S – Account for which subject is co-signer and becomes liable if maker defaults
T – Relationship with account terminated
U – Undesignated
X – Deceased

Type of Account

O – Open Account (30, 60 or 90 days)
R – Revolving or Option
I – Installment
M -Mortgage
C -Check credit (line of credit)

Date Indicators
A -Automated
C – Closed
D – Declined
F – Repossessed/Written Off/Collection
I – Indirect
M – Manually Frozen
N – No Record
P – Paid Out
R – Reported
S – Slow Answering
T -Temporarily Frozen
V – Verified
X – No Reply

MOP Current Manner of Payment
00 – Not rated, too new to rate, or approve but not used
01 – Pays as agreed
02 – 30–59 days past the due date
03 – 60–89 days past the due date
04 – 90–119 days past the due date
05 – 120 days or more past the due date
07 – Paying or paid under Wage Earner Plan or similar arrangement
08 – Repossession
8A – Voluntary repossession
8D – Legal repossession
8P – Paying or paid account with MOP 08
8R – Repossession; redeemed
09 – Charged off to bad debt
9B – Collection account
9P – Paying or paid account with MOP 09 or 9B
UC – Unclassified
UR – Unrated

KOB Kind of Business Classifications
A -Automotive
B – Banks and S&L
C – Clothing
D – Department, Variety and Other Retail
E – Employment
F – Finance, Personal
G – Groceries
H – Home Furnishings
I – Insurance
J – Jewelry, Cameras and Computers
K – Contractors
L – Lumber, Building Material, Hardware
M – Medical and Related Health
N – Credit Card and Travel/Entertainment
Companies
O – Oil Companies
P – Personal Services Other Than Medical
Q – Finance Companies, Other Than Personal Finance Companies
R – Real Estate and Public Accommodations
S – Sporting Goods
T – Farm and Garden Supplies
U – Utilities and Fuel
V – Government
W – Wholesale
X – Advertising
Y – Collection
Z – Miscellaneous

Information provided by TransUnion  June, 2011

Reasons for Renters Insurance

Renters insurance, like homeowner insurance, is sold as a package. Renters insurance provides coverage for your personal belongings and personal liability (legal responsibility) in the same way that a homeowner policy does. However, rental policies do not provide coverage for the value of the building you rent, so the premium for tenant coverage is low.

Reasons for Renters Insurance: Typically, the homeowner’s policy that covers the building you live in does NOT offer any protection for your property, your cost to find other housing, or your personal liability. If you rent an apartment or a home, you will not always be required to have renter insurance by the lease, but without it you are often left out in the cold if the building is damaged or you are a victim of theft. Renters insurance will also cover you if someone is injured in your home or elsewhere due to your negligence.

Renters Insurance for College Living:

  • If you live on-campus: Check and see if your belongings are covered under your parent’s homeowners policy. If a student is a dependent under their parent’s insurance coverage, their personal belongings may be covered in the event of a covered loss.
  • If you live off-campus: Consider purchasing renters insurance. Renters insurance will provide coverage if your property is destroyed or stolen, or if someone is injured on your rental property due to your negligence. If you are dependent on your parents’ insurance, check with their agent or insurance company to see if the coverage extends to a dependent living away at school.

Multiple Roommates: Renters insurance usually covers you or any relative you live with. If you live with non-relative roommates, each of you would need your own renters insurance policy to cover personal belongings and personal liabilities. Check your insurance policy contract or talk to your agent or insurance company for more details.

Selecting an insurer for renters insurance

Coverage and costs vary greatly by company. It’s important to shop when choosing an insurance company. Comparison shopping takes a little more time, but it can save you money!

  • The key to comparison shopping is knowing what coverage you need and then getting premium estimates (rate quotes) from a number of insurers. Each policy should provide the same amount of protection for your home, its personal contents, liability protection, and medical payment coverage. If you want full replacement-value protection on your house and personal items, make sure this coverage is included in all policies you consider.
  • Renters insurance companies use one of three methods to sell their products.
    • Independent agents represent several companies and can give you several quotes.
    • Exclusive agents only sell the products of one insurance company.
    • Direct market sales are over the Internet or by mail or telephone.

    You can find insurance companies and agents through the phone book, on the Internet and television and by asking friends and neighbors.

  • Have the agent explain the exclusions and limitations in the contract and quote options for perils like flood and earthquake that are not covered under the standard policy.
  • Cost is just one factor to consider when choosing an insurance company. It’s also important to look at the company’s financial condition and how it treats its policyholders. A company’s financial information is available from the agent that represents the company.
  • It’s illegal for unlicensed insurers or agents to sell insurance. Business cards aren’t proof that an agent is licensed. If you do business with an unlicensed agent or company, it might not pay your claims or refund your premiums if you cancel your policy. If an unlicensed agent or company contacts you, check with your state insurance department immediately, so it can investigate. Your actions may protect someone else from being victimized.

Questions you should ask the agent

  • Are the agent and the insurance company licensed by my state insurance department? For how long?
  • How can I find out the claims history of the home before I buy it?
  • If I submit a claim, how will it affect my premium when I renew the policy?
  • What discounts are available?
  • What does the policy cover? What doesn’t it cover? What are the limits to the coverages?
  • How much coverage for my personal property do I need?
  • Should I buy flood insurance or earthquake coverage?
  • How will my credit history affect my premium?
  • Underwriting standards

Underwriting standards are rules insurance companies use to decide whether to insure your property. A company may decline your application for coverage if your property does not meet its underwriting standards. Each company has its own underwriting requirements, but typical ones include:

  • Age, condition, and square footage of your home
  • Property upkeep and maintenance
  • Type of construction (brick, frame, stucco, etc.)
  • Exterior lighting or security systems
  • Home value and proximity to fire protection