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Real Estate Taxes

Rental Property Tax LawHere Ye Here Ye “Rental property tax law changes go into effect this year” Yes more great news for those who own Real Estate – NOT!

If you are the owner of rental property there is a pretty significant tax law change going into effect for 2012. As of this year anyone who owns rental property must now report all vendors doing work that exceeds $600. For the landlord that holds multiple rental properties this really is nothing new as they have been required to report this to the IRS.

Last year however, the Federal Government enacted the Small Business Jobs Act of 2010 (H.R. 3297) that expanded the reporting requirement to include ANYONE who owns rental property. To put it bluntly the little guy is now required to send a 1099 to contractors working on their homes.

If you are the owner of rental property it means you now have a legal obligation to collect information from contractors doing work at your property including their name, address, tax identification number or social security identification. You must also keep a detailed record of what you pay them through out the year. Again at the end of the year you are obligated to send them a 1099 form.

Rental Property Exemptions

There are a few exemptions that would allow a home owner not to report to the IRS including:

  • The property is only a temporary rental of your primary residence.
  • The income generated from the rental does not meet minimum threshold requirements.
  • Putting together the forms necessary to complete the reporting to the IRS would create a hardship for you.

As of this writing the IRS has not determined what would be considered the minimum income and what constitutes a hardship on your part. Expect the IRS to update these requirements soon. In the meantime do not let this deter you from keeping detailed records.

Recording Keeping For All Contractors

The requirement for keeping diligent records applies to all contractors doing work including but not limited to painters, electricians, plumbers, carpenters, landscapers, cleaners and even your accountant. Anything associated with running the business of having a rental property is included in these calculations.

When calculating the work that was generated on the property recoding keeping becomes vital because if you have a landscaper doing work in the beginning of the year that amounts to $350 dollars and later on in the year does another $300 dollars worth of work the burden of providing this information becomes necessary under the new rules.

Rental Tax Penalties For Filing Late

Rental Property Tax penalty

The IRS has not set the important tax dates as of yet for the 2011 tax year.  These dates will become important to have on your calender as the penalty for reporting late will be $250 dollars.

You will be able to file a 30 day extension for getting the tax forms to the IRS, however, this will not apply to making sure you get the appropriate forms to the contractors who have done work on your property. The contractors are going to need to have these forms in order to complete their own taxes and the burden is on the rental owner to provide them in a timely fashion.

If you are the owner of rental property you are probably aware of all the tax deductions available to you. If you are considering purchasing a rental property for the 1st time you may want to brush up on the rental property tax deductions. Of course this becomes an important piece of the puzzle come tax time!

Selling Your Rental Property

Have you gotten to the stage in your life where owning rental property may no longer be a desired part of your long term financial plan? Maybe you are just not that happy with all the rental tax law changes? There comes a point in time when you may have decided to throw in the towel. Owning rental property may no longer be at the top of your list for ways of making yearly income. There is no question that while rental properties can be lucrative they can also sap you of a lot of time and energy. If you have realized this is how you feel and want to sell your property, consider whether it makes sense to sell your home with the tenants still occupying the property or not. You should definitely understand the pro’s and con’s of selling a home with tenants. Consult with a local real estate agent and see what the local customs look like.

Be prepared for the Realtor to advise you to sell with the tenants out of the property. From personal experience it can be very difficult to sell a home when there are renters still occupying the home. It can actually be a nightmare if the tenants do not want to leave. They will make showings difficult and more than likely not keep the property in show ready condition. These are things you should take into consideration when deciding to sell with or without a tenant.


About the author: The above Real Estate information on rental property tax law changes was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 27+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Hopkinton, Milford, Southboro, Westboro, Ashland, Holliston, Medway, Franklin, Framingham, Grafton, Hopedale, Mendon, Upton, Northbridge, Shrewsbury, Northboro, Bellingham, Uxbridge, Worcester and Douglas.

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Massachusetts Tax Deduction Rental Property

Given that fact that I am a Massachusetts Realtor, I often get asked if I have any rental property. It is a pretty logical question as I work in the field and would obviously have access to the information necessary to get a pretty good deal on a rental purchase.

Honestly I have never been interested in the headaches associated with a rental property. Everything from dead beat tenants not paying their rent to the thought of getting a call in the middle of the night from someone saying they have no heat or the water tank burst. No thanks…not for me!

This is not to say that owning rental property is a bad thing. There are lots of folks who have made terrific money off of owning a rental property. I have many friends as was as clients who I have helped purchase rental property over the years.

One of the excellent benefits of owning rental property besides collecting a rental check every month are the tax deductions.

The tax deductions for a rental property are quite different than those of a primary residence. It is important to understand the differences in tax deduction for a rental property. The IRS allows property owners to offset income by writing off quite a few rental expenses. There is a publication put out by the IRS called IRS Publication 527 that gives a detailed description of what tax deductions are allowed.

Rental Expenses For Write Offs

When you are renting a home one of the most important things you can do financially is to keep meticulous notes on what you spend that is associated with the property. Make sure you keep all the receipts for items dealing with the rental. Some of the most common deductible expenses for a rental property are cleaning and general maintenance, fees and commissions paid to a Realtor or rental agent, any advertising expenditures, mortgage expenses such interest, taxes and insurance as well as well as utilities that you happen to pay for.

If it is a condo that you are renting another common deduction is the condo fees. When initially purchasing a rental home you can also deduct fees associated with obtaining a mortgage.

Rental repairs v.s rental improvements

The tax deductions on a rental property v.s a primary residence are quite different. In fact what you can deduct in a rental property is treated much differently. In a primary residence you can have tax breaks for home improvements but not for general repairs. In a rental home the IRS says you can deduct a repair (things that keep a home in operable condition) but that an improvement most be depreciated over several years.

According to the IRS an improvement increases the value of your home while a non-eligible repair just returns something back to it’s original condition. The IRS further states that a capital improvement has to last for more than one year, add value to your home or prolong it’s life. An example to distinguish the two would be fixing a window pain vs installing replacement windows.

Whenever you hire a contractor to perform services for your rental, you can deduct their wages as a rental business expense. This can be done whether the worker is an employee or an independent contractor.

Depreciating a rental property

Depreciation in a home is part of the value that is lost over time due to wear and tear. With improvements to a rental home you can deduct a portion of that value every year over a set number of years. Different components of a home have different time frames over which you can deduct as an expense.

Figuring out depreciation on a rental property is probably something best left to a qualified tax professional unless you have a background in accounting or are a math whiz. The basics of the tax code allow you to depreciate your entire property over 27.5 years. As a landlord you are able to depreciate the property until you  recover your costs or you stop renting the home which ever comes 1st.

Figuring rental home profit and loss

Figuring Rental Property profit and loss

Figuring your profit or loss on a rental property is pretty easy. It is as simple as looking at what you took in for rent and then deducting all your expenses. For example if your collecting rents over a year equal $24,000 and your expenses equal $6000 then you would have a gain of $18,000.

Showing a profit on a rental of course is what everyone strives for but what happens when you are faced with greater expenses that what you are taking in for rent?

The IRS allows you to write off a loss in a rental property as long as you hold a ten percent interest, meet certain income requirements and actively participate in renting the place. Participation can be something as simple as placing an advertisement.

If you are married and filing jointly and your adjusted gross income is less than $100,000, you can deduct up to $25,000 in rental loses. Your deduction for loses will gradually phase out between income of $100,000 t0 $150,000. There is the possibility however, that you can pass along loses to future years.

Miscellaneous rental deductions

One other expense worth noting is travel expenses going to your property. You are able to deduct for the millage going to the rental home. Valid reasons for traveling to the rental property include for collection of rent, showing the property or performing repairs/maintenance. If using your own car while traveling to the home you are able to claim the standard millage rate of 55 cents per mile as of the 2009 tax year.

As you can see there are some excellent tax deductions for owning rental property.

When it comes to taxes it always makes sense to consult with an accountant, as everyone’s tax situation can vary!

Other Real Estate articles worth a look:

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About the author: The above Real Estate information on tax deductions for rental property was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Hopkinton, Milford, Southboro, Westboro, Ashland, Holliston, Medway, Franklin, Framingham, Grafton, Hopedale, Mendon, Upton, Northbridge, Shrewsbury, Northboro, Bellingham, Uxbridge, Worcester and Douglas.

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Tax breaks on home improvements

There is no question that there are far less people today that have the kind of equity in their home that they did five to ten years ago. In most areas across the country Real Estate values have dropped by a substantial margin decreasing the amount of folks who have capital gains concerns.

One of the great benefits of home ownership has been the fact that equity growth to an extent does not always get taxed.

A very important capital gains tax law went into effect in 1997 and is known as the Taxpayer Relief Act of 1997.

The current Real Estate capital gains tax law when selling your personal residence allows for an exclusion of up to $250,000 in profit if you are single and $500,000 if you are married. In order to be eligible for the tax exclusion you must have lived in your home for two of the last five years. The home must also be your personal residence and can not be considered an investment property.

If you move often or do not have substantial equity in your property then tax breaks on home improvements are not going to be much of a concern.

For those that are fortunate enough to have lived in their home for a long period of time and have built up a sizable equity position, there is good reason to keep track of what you have spent on home improvements.

By keeping track of the home improvements that have taken place in your property you are able to increase the cost basis which will decrease the amount of taxes you pay when it comes time to sell.

How do home improvement tax breaks work?

In order to figure out how to calculate your tax break from home improvements  you are going to need to figure out what your initial cost basis was when you 1st purchased your home.

This will be what you actually paid plus any closing costs such as attorney fees, transfer taxes, surveys, commissions or any inspection related charges.

You will then need to figure out all the home improvements you have made to your home since the purchase. As an example lets say you purchased your home for $400,000 including all the closing cost expenses.

Lets further assume you also have $50,000 in home improvements since you purchased including a new bath room, a finished basement, a large deck and brick patio. if you add the purchase price and improvement costs together you get an adjusted basis of $450,000.

Reducing Real Estate capital gains tax

Going back to the qualifications of the capital gains tax law for Real Estate outlined above, lets assume you have met the litmus test and have lived in the home for two out of the last five years as your primary residence.

You find out you are going to be moving out of the area you are located in and sell your home for $700,000.  If you are single the tax law says you can exclude up to $250,000 in profit or gain.  Using the $700,000 sale price minus the adjusted cost basis of $450,000. You would not pay any taxes on the sale.

Here is where the tax breaks on home improvements come in. If you had not kept track of what you spent making your home better you would be paying taxes on $50,000 because that would be become what is considered profit to the IRS.

By keeping receipts on the home improvement dollars you have invested you will save $7500 0n your taxes! As of this writing the current capital gains tax rate is 15%. $50,000 x 15% = $7500. This is obviously a nice chunk of change to save just by being a little studious.

What counts as a home improvement for tax purposes?

When calculating tax breaks the one thing you don’t want to do is fool around with the IRS. While you may consider every dollar you spend on your home an improvement the IRS certainly does NOT! As a matter of fact most Realtors or buyers won’t either. See home improvements with the worst return on investment.

According to the IRS an improvement increases the value of your home while a non-eligible repair just returns something back to it’s original condition. The IRS further states that a capital improvement has to last for more than one year, add value to your home or prolong it’s life.

Home improvements must also be there when you sell your home as well. For example if you spent money putting tile flooring down in your kitchen fifteen years ago and then five years ago put in new hardwood floors you can’t claim both as improvements.

It is important to note that repairs do not count as improvements. Again according to the IRS, repairs are things that are done to keep up a homes condition without adding value or prolonging it’s life. There are real slight differences in comparing an improvement to a repair. An example of a repair would be fixing a window pain. An improvement would be replacing a window.  If you are unsure on whether an improvement you have made to your home can be counted or not I would recommend speaking to a qualified tax professional or look at page 9 of publication 523 which details tax issues when selling a home.

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About the author: The above Real Estate information on tax breaks on home improvements was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Hopkinton, Milford, Southboro, Westboro, Ashland, Holliston, Medway, Franklin, Framingham, Grafton, Hopedale, Mendon, Upton, Northbridge, Shrewsbury, Northboro, Bellingham, Uxbridge, Worcester and Douglas.

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Appealing a Massachusetts assessed home value

Taxes on homes or other property in Massachusetts are typically based on two pieces of information including the towns property tax rate and the assessed value.

Obviously the tax rate is set in stone and is not something that is going to be changed once it is put in place for that particular fiscal year. What does change of course is the assessed value of the home.

If you are a Massachusetts home owner, appealing a Massachusetts property tax bill if something you may want to consider if you feel the assessed value is way off base on your home.

How is assessed value calculated

In order to appeal the property tax bill you are going to need to have a good understanding of how the assessed value of your property was calculated by your local tax assessor.

A Real Estate assessed value is typically calculated on a year to year basis in most communities although it is possible it could be every few years for some. What you need to clearly understand is that the assessed value of a property is NOT the same as:

  • An appraised value by a lender
  • A market evaluation by a Realtor which is often called a BPO or broker price opinion
  • The actual market value

It is easy to understand why the general public can get confused on the assessed value vs fair market value issue because even many Real Estate agents don’t know the difference! How do I know this? From some of the crazy statements I hear from hanging around the office water cooler or even some of the silly advertising that you find in the Multiple listing service or other advertisements.

As an example “come take a look at this bargain priced home listed for $100,000 less than assessed value”. I bet you are getting excited already and want to see this place – NOT!

What this tells me is that the agent marketing the property knows very little about property valuation or they think someone else might be stupid enough to believe the property is being given away by the owner. A good buyer’s agent that didn’t just get their license and has a bit of intelligence would be able to point out to a naive buyer that the home has been over assessed by the town and the owner is paying too much in taxes!

Keep in mind that assessed values are nothing more than a yard stick for a municipality to collect an appropriate amount of taxes to sufficiently cover the state and local appropriations chargeable to the city and town.

Towns adjust the tax rate and a properties assessed value to achieve this goal. For a complete explanation see Assessed value v.s fair market value.

Reducing Massachusetts property taxes

So how do you go about checking on whether the assessed value of your home makes sense? The 1st thing you are going to want to do is look over what is called the town assessment field card and check it over for accuracy. The town field card will have pertinent information about your property including the bedroom and bath count, the gross living area, the age,  garage type and size, as well as the amount of land you own. All of these things play a large roll in where your assessment will be figured.

You will want to look over the field card diligently to make sure everything is correct. If there are blatant errors that pop out you may have an easy challenge on your hands.

One would imagine that if you believe you are being over assessed it could be because your neighbor of someone else with similar characteristics to your property is being assessed at a lower amount. This is clearly a possibility and actually happens fairly often.

What you are going to need to do is have someone provide you with what they feel are the most comparable properties to yours that have sold in the town. A skilled local Realtor is usually a good option to help you with this. Armed with this information you can then check the assessed values on those properties. There should be some kind of correlation with these properties. Don’t discount the fact that your home may be in a more attractive neighborhood. If the assessed value of the similar homes are lower you may have a case.

Meet with the local tax assessor

With your research in hand you should schedule an appointment with your local assessors office and file for a tax abatement. The necessary paper work regarding the application process and the deadlines for filing should be made available to you.

Applications for abatement’s are typically due on or before the due date for payment of the first actual tax bill. The towns assessor has up to three months in Massachusetts to act upon an abatement request.

If you are denied your abatement request and do not feel that the assessor made the proper ruling you have the right to appeal to the State Appellate Tax Board.

One other thing to keep in mind is that you may be eligible for other tax exemptions if you are a senior citizen, served in the military or have a disability. For an explanation of these exclusions see Massachusetts property tax relief. These are programs that many Massachusetts residents may not even be aware of.

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About the author: The above Real Estate information on appealing a Massachusetts property tax bill was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Hopkinton, Milford, Southboro, Westboro, Ashland, Holliston, Medway, Franklin, Framingham, Grafton, Hopedale, Mendon, Upton, Northbridge, Shrewsbury, Northboro, Bellingham, Uxbridge, Worcester and Douglas.

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Massachusetts Tax Stamps and Other Costs to Sell a Home

April 2, 2010

One of the things that I have realized over the years while representing Massachusetts home sellers is the fact that many are completely unaware that there is a tax to sell your home! While it is true that if you live in Massachusetts you come to grips quickly that just about everything gets taxed, sometimes […]

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Tax Deductions to Remember When Buying a Home

March 8, 2010

When you are getting a mortgage to purchase a home, there are certain deductions that the IRS allows that are well worth remembering come tax time in April. The following is a list of  some of the deductions that many people forget about when buying a home: POINTS Points on a home loan are tax […]

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Massachusetts Property Tax Relief for Seniors

March 5, 2010

One of the things that Massachusetts seniors face in many of the destination towns where schools are top notch is the growing burden of higher taxes. There is almost always a correlation between a towns popularity and the market value of the homes. When you look at why property values are higher in one town […]

10 comments Read the full article →