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Rental Property Taxes 2014

tax timeIt’s that dreaded time of year again when we all have to buckle down and work on our taxes. This process can be a little more complicated for those that own renal property. Here are answers to some general questions that most landlords have when it comes to rental property taxes:

 

Is the income from rental property taxable?

Yes, the income is taxable but the whole amount you collect is not necessarily taxable. You may subtract the cost of getting your rental ready to rent and the amount of money to maintain the rental property.  Report rental income and expenses on Schedule E and file it with you Form 1040.

If I receive rent in January of 2015 for December of 2014, in what year do I report it?

You would report the rental income on your 2014 tax return because you received it in 2014. You always report the rent for the year you received it.

 Are Security Deposits Taxed?

No, security deposits that are intended to be returned to the tenants at the end of the lease are not taxable.  If you incur damages from tenant and have to keep part of the security deposit then you must report that money as income. It would however be offset by the deduction on you Schedule E for the cost of repair for the damages

Note that a deposit for a last month’s rent is taxable when you receive it because that is simply rent paid in advance.

What can I deduct on my rental property income?

All the expenses you pay for in maintaining and managing your rental property are typically deductible. Note that even if the property is vacant but you’re maintaining it, you can add up those expenses to set against your rental income when you get it.

Deductions include:

  • Supplies
  • Yard maintenance
  • Depreciation
  • Advertising
  • Homeowner association dues and condo fees
  • Insurance premiums
  • Interest expense
  • Local property taxes
  • Management fees
  • Pest control
  • Professional fees
  • Rental of equipment
  • Utilities
  • Repairs

Keep good records even though it can be a hassle. You must be able to back up any deductions you take!

 

 

 

 

 

 

 

What Kind of Information Appears in the Public Records Section of a Tenant Credit Report?

A tenant credit report is a crucial document for a prospective landlord and a prospective tenant. The property owner can use the information in the report to determine the applicant’s ability to maintain the financial obligations of a lease. A credit report contains information such as employment information, tradeline summaries, previous addresses, current credit information, and public records such as bankruptcies, liens and judgments.

Public records play an important part in the background check process, as well. Public records contain negative information that silently speaks about the person’s creditworthiness. The following are types of information that a prospective landlord or property owner may find in the public records section of an applicant’s tenant credit report:

Bankruptcies

Bankruptcies are an additional piece of information that a prospective landlord would find in the public records section of a tenant credit report. Bankruptcies are legal declarations that a consumer is unable to pay his or her debt. Such declarations can remain on a person’s credit report for as long as seven years. A prospective landlord may see a bankruptcy as an indication that a debtor has money management problems and issues with other lenders. Alternatively, a property owner could see a recent bankruptcy as a clean slate for a prospective tenant.

Civil Judgments

Civil judgments appear in the public records section of a tenant credit report. Civil judgments can consist of a wide variety of negative information. A civil judgment occurs whenever a party or person sues a debtor to collect a sum of money. The suing party may be a bill collector, a person who was involved in an accident, or some other injured party. If the courts rule against the debtor, then the civil judgment will show up on the report. The report will show the date the court made the judgment, the amount of the debt, and the status of the debt.

Tax Liens

Tax liens appear on a tenant credit report. Tax liens occur because of unpaid taxes. A debtor should pay all tax debts to increase his or her chances of being accepted for a lease agreement.

Property owners should make their decisions based on all the information in the credit report rather than just the negative information.

How Student Loans Affect Your Credit Report

With the average student loan amount at the end of 2013, being $29,400, many college graduates are now wondering how their loans will affect their credit report. While the high costs of education may have forced them to take a student loan, many college students ignore their loans until the first payment is due. Unfortunately, by that time, many of them find themselves in in a bad situation, especially with the rise of post-graduation unemployment.

The best time to consider how your student loan will affect your credit is before you even apply for one. Knowing how your loan will affect you could have a large impact on how much you choose to borrow and, in turn, on how much you will have to repay. Consider that the average fixed interest rate for a Stafford loan right now is 6.21 percent, and private loan rates are even higher. Private loans’ rates are based on your credit score, and they tend to be variable rates, which means that the rates can fluctuate throughout the life of the loan.

Speaking of the life of the loan, the standard length of a student loan is 10 years. There are other repayment options, one of which, the extended repayment option, will allow you to lengthen your term by up to an additional 15 years. Extend with extreme caution, though; lengthening your loan term also greatly increases the amount of interest you will pay over the life of the loan. If you are financially able, it is best to pay your loan off sooner rather than later.

There are consequences to mismanaging your student loan repayments. If you are in danger of being late, it’s better to contact your loan provider and ask to defer your payments. A deferred payment does not affect your FICO score, unlike a late payment, which will incur a late fee and create affect your credit report after a certain time period. Also, deferring payments on certain loans stops the accrual of interest until the deferment period is over, while making late payments allows interest to accrue on top of the unpaid interest and the principal! Even worse, if your payment is more than a few months late, your loan will go into default status. A defaulted loan severely damages your credit and dramatically decreases your FICO score, making it difficult to qualify for other types of credit, including renting a home or apartment.

There is a silver lining, though. A well-managed student loan can help a new graduate establish a great credit history. Since your FICO score is based on different factors, including payment history, length of credit history, and debt to credit ratio, paying your loan responsibly over the length of the loan will increase your FICO score a little more each year. If you choose to take a student loan, take no more than you need, and pay on time every single month. You will be doing yourself a huge favor.

What Are the Rules Landlords Should Know About Rental Applications and Can I Charge a Tenant Application Fee?

When talking to landlords, two common questions they ask are what rules should I be aware of regarding the rental application form I use and can I charge the prospective tenant an application fee?

There are laws in place regarding both of these issues that you should be aware of to ensure that you handle this process correctly. We’ll walk you through the pitfalls to help you avoid any legal issues.

First and foremost you have to be clear in your application if you are going to be screening the tenant and you will need to list the type of information that will be accessed to conduct the screening (i.e., credit report, public records, eviction filings).  Free Tenant Application

In regards to charging an application fee, you can only charge your applicants for your cost of the screening fees and you can only charge the applicant these fees if you provide written notice that you will be conducting screening (such as on the application the tenant signs).  It’s important to note that the law states that you cannot profit from application fees. You can only change what the processing of screening information costs you.

Most landlords pay tenant screening companies to research tenant applicants. The tenant screening company can conduct criminal background checks, eviction history, court records, employment verification, landlord reference checks, history of late payments and bankruptcies.

The law also requires that if you wish to deny the tenant’s rental application that you must provide a written adverse action notice stating the specific reasons and consumer report or information that led to the denial. If you as the landlord fail to provide the prospective tenant with a written notice before screening or a written adverse action notice if denied, then the landlord may be liable to the tenant for legal damages.  Free Denial Letter

You are also required by law to provide the rejected applicant the contact information for the consumer reporting agency (if you are using a screening company). You must also notify the applicant that they have the right to request a free copy of the consumer report if they are denied and that they have the right to dispute the accuracy of the consumer report.  Free Denial Letter

 

How will collections affect my credit score?

Any collections item, medical or not, can lower a person’s FICO credit score by as much as 100 points. The degree to which a collection hurts your credit score is directly correlated with how high your credit score is when the collection agency reports the debt. The higher your score, the more points you can lose.

Generally accounts which go into collections will appear on your credit report for up to 7 years. Once you pay a collection account in its entirety the collection accounts status should change to “Paid, Paid Collection, or Closed”. If you settle with the collection agency for less than the full amount, your credit report should list the account as “settled, settled for less, or settled for less than full balance”.

Paying off the collection account sooner doesn’t mean it is deleted from your credit report immediately, instead it is just listed as paid. It is smart to pay your debts to reduce the debt you owe and show that you can repay your obligations. The collection paid or unpaid will have a negative effect until it’s purged from your report. One of the most important factors in how collections accounts affect your score is how recent the collection occurred, not necessarily the amount of the collection.

Medical debt is the most common type of collection account, representing nearly half of all reported collections. Almost 1 in 6 credit reports contain a medical debt collection, according to the Federal Reserve. With the new FICO scoring model, medical collections—including unpaid medical collections—will have a smaller impact than non-medical collections.

If the collection on your report is not your debt, you’re not required to pay it and creditors cannot list it on your report. If the collection status still remains on your report and more than 7 years has passed you should dispute the debt from your credit report.

With a physical site inspection those customers ordering credit reports for the purpose of tenant or employment screening from StarPoint Tenant Screening can view collection account detail when provided such as:

  • Creditor
  • Member number
  • Balance
  • Date the Collection was opened
  • Date Reported
  • Account Number
  • Date Paid

Individuals wishing to view their own credit report should visit www.annualcreditreport.com for a free report annually.

What is a Public Record and How Long will a Public Record Show on a Credit Report?

Public records can have a very negative affect on a credit score.  If a person has any filed against them, they should be aware of the following information.

 What is a Public Record?

Public records refer to liens, bankruptcies or civil judgments that have been documented by federal, state or county courts. These records are considered public information and can be accessed by anyone. These records are also reported to the credit bureaus (TransUnion, Equifax and Experian) which are the entities that provide credit report history to mortgage lenders, property managers, employers, and other parties evaluating a person’s credit worthiness.

Criminal records are also considered public records, however, criminal records are not reported to the credit bureaus and will not show up on a consumer’s credit report.

 How will a Public Record affect a Credit Score?

Payment history determines 35% of a person’s credit score. Public records fall into the payment history category so the presence of these records can have a large negative affect on an overall score. These events are considered serious but older items and items with small amounts will count less than recent items or those with larger amounts.

 How Long will a Public Record Stay on a Credit Report?

Chapter 7 bankruptcies are reported on a credit report 10 years from the filing date because the individual is not required to repay the debt.

Chapter 13 bankruptcies are deleted 7 years from the filing date because the individual is required to repay at least part of the debt as determined by the court.

Civil judgments are filed when a person is sued for a monetary reason and they lose. Basically the individual owes a debt according to the court which is then reported on their credit report. Civil judgments stay on a credit report for 7 years from the filing date.

Tax liens are filed by state, county or federal courts when an individual has not paid their taxes. Unpaid tax liens can remain on a credit report for 15 years from the filing date. Paid tax liens remain on the report for 7 years from the paid date.

 

What can a Person with Public Records do to help their Credit score?

If a public record is inaccurate, the individual should follow the directions outlined by the Federal Trade Commission here:  http://www.consumer.ftc.gov/articles/0151-disputing-errors-credit-reports

If the public records are accurate, the individual should make sure they’ve paid overdue accounts. The individual should then contact the three credit bureaus (TransUnion, Equifax and Experian) with documentation of the payments so the information on the report can updated to show the items as paid. While the records will still show on the credit report for the stated length of time, paid items will have a much less negative affect on a credit score.

Tenant Credit Report Unable to Score?

Did you order a Tenant Credit Report from us and receive the message:

Score:   Unable to Score

There can be a few reasons why the tenant’s credit could not be scored.  Here are a few possibilities and what you can do about them:

  • Confirm that the applicant’s name matches their Social Security Number. You can do this by looking in the Details section of the credit report for the word no-hit.

What you can do: If your applicant’s name does not match their Social Security Number a credit report cannot be returned.  Confirm with the applicant their legal name and Social Security number.

  • The applicant is young or a recent US Citizen and does not yet possess enough active credit such as a student loan, auto loan, mortgage or credit cards.

What you can do: If your tenant applicant is young check with your state landlord laws to see if you can ask for an extra initial deposit up front or ask the applicant if they can provide a W-2 or recent pay stubs to confirm their income or have a parent co-sign the application and lease. Most credit bureaus cannot generate a positive score unless the applicant possesses at least 2 active lines of credit.

  • The applicant has lived their life paying cash for everything and have not taken out any loans or had to pay any creditors.

What you can do: If your tenant applicant does not have any debt check with your state landlord laws to see if you can ask for an extra initial deposit up front to help protect yourself or ask the applicant if they can provide a W-2 or recent pay stubs to confirm their income or have someone co-sign the application and lease.  Most credit bureaus cannot generate a positive score unless the applicant possesses at least 2 active lines of credit.

  • The applicant has previously had loans and debt, but has either closed all of his/her accounts and does not possess enough open accounts for a score to be generated.

What you can do: If your tenant applicant has previously had credit but all accounts are now closed, check with your state landlord laws to see if you can ask for an extra initial deposit up front or ask the applicant if they can provide a W-2 or recent pay stubs to confirm their income or have someone co-sign the application and lease.  Also ask your credit reporting agency if there are any additional details on why & when the accounts were closed.  Extra information can sometimes be provided such as if they were closed normally or paid as agreed.

  • The applicant has previously had loans and debt, but filed for bankruptcy and all of his/her accounts were closed as part of the bankruptcy filing.

What you can do: If your tenant applicant has previously had credit but all accounts are now closed, check with your state landlord laws to see if you can ask for an extra initial deposit up front or ask the applicant if they can provide a W-2 or recent pay stubs to confirm their income or have someone co-sign the application and lease.  Also, ask your credit reporting agency if there are any additional details on when the bankruptcy occurred and if there has been any additional debt or collections since then.  Extra information can sometimes be provided such as the closed date, if they were closed normally, or paid or paying as agreed.

  • The applicant has previously had loans and debt, but all accounts are now in collections.

What you can do: If your tenant applicant has previously had credit but all accounts are now closed, check with your state landlord laws to see if you can ask for an extra initial deposit up front or ask the applicant if they can provide a W-2 or recent pay stubs to confirm their income or have someone co-sign the application and lease.  Also, ask your credit reporting agency if there are any additional details on if these accounts are in collections, when they went to collections and if they are still in collections with a balance.

The Most Common Rental Expenses

Landlords! Remember these common rental expenses when preparing your 2013 tax return.

  • Advertising – advertising expenses relating to offering the unit for rent.
  • Cleaning and Maintenance – Whether you are cleaning an apartment in between tenants, cleaning out a sewer line to avoid future plumbing problems or power washing the building’s exterior, it is all tax deductible. Make sure to keep all receipts for materials, rental equipment and labor costs.
  • Commissions – Commissions, bonuses, fees, and other amounts you pay to get a lease on the property.
  • Depreciation – You can begin to depreciate rental property when it is ready and available for rent.
  • Insurance – If you pay an insurance premium for more than one year in advance, for each year of coverage you can deduct the part of the premium payment that will apply to that year. You cannot deduct the total premium in the year you pay it.
  • Interest (other) – You can deduct mortgage interest you pay on your rental property. When you refinance a rental property for more than the previous outstanding balance, the portion of the interest allocatable to loan proceeds not related to rental use generally cannot be deducted as a rental expense.
  • Legal and other professional fees – You can deduct, as a rental expense, legal and other professional expenses such as tax return preparation fees you paid to prepare Schedule E, Part I.
  • Local transportation expenses – You may be able to deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property.
  • Management fees – Management fees that you pay to a property management company. The property management company should provide you with end of the year tax papers.
  • Mortgage interest paid to banks, etc. – If you paid $600 or more of mortgage interest on your rental property to any one person, you should receive a Form 1098 or similar statement showing the interest you paid for the year.
  • Points – The term “points” is often used to describe some of the charges paid, or treated as paid, by a borrower to take out a loan or a mortgage. These charges are also called loan origination fees, maximum loan charges, or premium charges.
  • Repairs
  • Taxes – In most cases, you cannot deduct charges for local benefits that increase the value of your property, such as charges for putting in streets, sidewalks, or water and sewer systems. However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits.
  • Utilities – Generally, an expense for repairing or maintaining your rental property may be deducted if you are not required to capitalize the expense.

What to Do When Your Tenant Abandons Your Rental Unit?

If you have not heard from one of your tenants in a while  and his or her rental payment is already past due, it is time to investigate what’s happening.

According to a property owner s in Florida, one of his tenants abandoned his rental property, neglected to pay the property rent and gave no notice before leaving. He was devastated because he trusted that person thinking he was responsible. But, instead of filing legal charges against him, he just forgot the issue because he did not want to deal with a costly lawsuit.

He also reasoned that he did not know where to start his complaints about tenants who abandoned rental properties. He  felt the best thing to do  was some thorough tenant screening procedures in the future to prevent an incident like this from happening again in the future.

Now, if this happens to you, there are specific steps you can do to recover the amount of money owed by the tenant who abandoned his obligation. You also have the right to collect money for any damages on your property caused by the tenant who left including the attorney’s fees if you end up in court.

  • Give proper notice. Landlords are obliged to give a proper “notice of abandonment” to his or her tenant before they can get back the property. After two weeks of abandonment, you can put the notice of eviction on the rental unit’s door in case tenant returns. Write on your notice that you will take back the property if he or she cannot pay the rent on or before the date you specify. You can even send a message to the tenant through email or by any other means of contact that your tenant has in your file. You must put in your notice that you will be filing legal charges for what he or she owes you.
  • Take back the property in a legal way. If your tenant has not made any contact with you after three weeks of posting and mailing the notice, you can now take back the abandoned rental unit. You can change the lock of the rental unit and begin assessing the place. Record evidence that the property has been abandoned such as taking pictures and writing down descriptive notes including the time and date. When you file your charges, these documents will help  make the filing process really fast. After taking all the notes and  totaling  the amount that your tenants need to pay, get the rental unit ready for rent again. Remember, do a tenant credit check screening process to insure that “rental unit abandonment” will not happen again.
  • File your charges in court. Be ready with all the documents you have, the notice you gave them and all the documents that will support your charges. You can contact your lawyer to start the legal proceedings to sue your tenant who abandoned their obligation. This way, you can recover what has been owed from you.

As much as possible, prevent this “rental abandonment” case in your rental property business. You can make this possible if you seek help from a credible tenant screening service provider. They can help you check the prospective tenant’s credit, collection accounts plus get info on their payment patterns, payment history from their previous rental unit, tax liens and much more! By doing this, you can help guarantee that you will get a responsible tenant.

How to Temporarily Lift your Credit Freeze

Did you place a credit freeze on your credit report but now you want to rent a home, condo or apartment?  There are ways to temporarily lift this freeze so that your tenant credit report can be accessed.

If you wish to temporarily lift your Security Freeze with Transunion:

Go online:
It’s the fastest, easiest way to accomplish your goal right now >>

By Telephone:
Call 888-909-8872 if you wish to temporarily lift your Security Freeze. Our interactive voice response system will guide you through the process. Please have ready your Social Security Number, date of birth, Security Freeze PIN, lift type, start and end dates and the payment method to be used to pay the applicable fee, if any, for the service. Please refer to the Security Freeze Table for fees, if any. Under certain circumstances, as defined by state law, you may be eligible for reduced fee or free Security Freeze services. Please note that it may take up to 15 minutes to process your request. It may take longer if you have lost your Security Freeze PIN.

By Mail:
Complete the Lift section of the Security Freeze Form that was sent to you with the Security Freeze information letter (sent to you after you requested the Security Freeze), and mail it to the address shown at the bottom of the form. Please refer to the Security Freeze Table for fees (if any). Under certain circumstances, as defined by state law, you may be eligible for reduced fee or free Security Freeze services. Acceptable forms of payment are check, money order, or credit card (American Express, Discover, MasterCard and Visa). When selecting the start date for your temporary lift, be sure to allow mail delivery time for your request to reach TransUnion. It may take up to three business days from date of receipt to process your request to temporarily lift the Security Freeze by mail. It may take longer if you have lost the Security Freeze PIN.

Contact Us
StarPoint Tenant Screening
520 East Zaragoza
Pensacola, FL 32502

Ph: 850-262-0002
Toll Free: 877-330-2444
Fax: 877-349-2175

info@starpointscreening.com