Rental properties in affluent areas of Los Angeles can be cash flowing tremendously- so it's important to have property bookkeeping and tracking of expenses, and understand the tax advantages compared to other types of investments. One of the biggest benefits of owning rental property come tax time are the special opportunities to deduct expenses related to your rental property and rental income. When you rent a property to others as a landlord or real estate investor, you must report the collected rental income as taxable income. The following article provides tax tips from the IRS for landlords reporting rental income and list of acceptable tax deductions offered to rental property owners. WHAT IS CONSIDERED RENTAL INCOME? Rental income includes all amounts you receive as rent from residential occupancy of your properties. You must include all income collected as rent from all your properties. Advanced rent received during the year, even if it is meant to cover rent in a future year, must be reported on the current year’s return. For example, if you have a 12-month lease that began in June 2016, and your tenant paid you first and last month’s rent up front, you would report the rent for June 2016 (first month’s rent) and May 2017 (last month’s rent) as rental income earned in 2016. Security deposit funds are not included in your tax return when you first receive them from a renter. Only if you keep all or a portion of the security deposit funds during the year as part of the lease terms, you must include the amount of the deposit you kept in your reported income that year. Fees collected from a tenant for things like late rent payments, pet fees, parking spaces, or early lease cancellation fees must be included in your total rental income for that year. Services received, instead of money, as rent, must be included as the fair market value of the services in your rental income. For example, your tenant is a painter and offers to paint your rental property instead of paying rent for two months. If you accept the offer, include in your rental income the amount the tenant would have paid for two months worth of rent. RENTAL PROPERTY TAX DEDUCTIONS FOR LANDLORDS The following list of landlord deductions is provided by the IRS to help investors at tax time minimize their tax burden. As you begin a new year, or prepare your taxes from the preceding year, make sure to keep excellent records of the following tax deductions available to landlords come tax time. The only way to make sure you are maximizing your tax deductions is to maintain proper records of all your expenses.
Make sure to speak with your tax professional if you have any questions or concerns about the tax opportunities available to rental property owners. Based on Rentec Direct Blog post.
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The decision to sell or rent a home involves considering various factors, and both options have their own set of pros and cons. Here's an overview of the advantages and disadvantages of selling versus renting a home:
Selling Your Home: Pros:
Pros:
Renting out a single-family home in an affluent neighborhood such as Brentwood, Santa Monica, Westwood, Malibu, Beverly Hills, Pacific Palisades, and by the beach, comes with both advantages and specific considerations due to the upscale nature of the area. Here are some essential steps and considerations for renting out a property in an affluent neighborhood:
Legal Alert from KTS Law
Under SB 329 and SB 222, all landlords in California will be required to accept Section 8 and VASH vouchers and other forms of rental assistance and to consider them as part of an applicant’s income. Both will go into effect on January 1, 2020. SB 329redefines source of income as “lawful, verifiable income paid directly to a tenant or to a representative of a tenant, or paid to a housing owner or landlord on behalf of a tenant, including federal, state or local public assistance, and federal, state, or local housing subsidies, including, but not limited to, federal housing assistance vouchers issues under Section 8 of the United States Housing Act of 1937.” SB 222 adds to the definition of source of income HUD Veterans Affairs Supportive Housing (VASH) vouchers and clarifies that a landlord is not considered a representative of a tenant unless the source of income is a VASH voucher. SB 222 also adds military and veteran status as new protected classes under the FEHA. Many local jurisdictions, such as Alameda, Berkeley, Corte Madera, East Palo Alto, Fremont, Foster City, Hayward, Los Angeles (City and unincorporated areas), Marin County (unincorporated areas), Santa Clara County (unincorporated areas), City of San Diego, City of San Francisco, City of San Jose, Santa Monica, and Woodland have existing ordinances that include Section 8 and other rental assistance in their definition of source of income. The passage of SB 329 and SB 222 means that California residential landlords throughout the state will no longer be able to say they don’t participate in the Section 8, VASH or other rental assistance programs. It is anticipated that tenant’s rights groups will be conducting testing to see whether landlords are aware of and are complying with the law. Although the changes do not go into effect until January 1, 2020, landlords who don’t currently participate in rental assistance programs are advised to respond to inquiries about whether they accept Section 8, VASH or other rental assistance that although they do not currently participate, they will be participating effective January 1, 2020. The FEHA states that it is unlawful to make, print or publish or cause to made, printed or published, any notice, statement or advertisement with respect to the sale or rental of a housing accommodation that indicates any preference, limitation, or discrimination based on any enumerated protected class, including source of income. Accordingly, it is important that all advertising (including ads posted on third party websites such as Craigslist) be revised to remove any references such as “No Section 8” or “We do not participate in Section 8” before January 1, 2020. The FEHA retains language that in instances where there is a government subsidy, it is unlawful to use a financial or income standard in assessing eligibility for the rental housing is that is not based on the portion of the rent to be paid by the tenant. The net effect of this language, when combined with then new definitions of source of income, is that the voucher amount must be considered as part of the tenant’s income and any income standard applied by the landlord must be based on the portion of the rent which would be paid by the tenant, rather than the total contract rent. Nothing in either SB 329 or SB 222 prevents a landlord from requiring a tenant with a Section 8 or VASH voucher or other rental assistance to meet the landlord’s other criteria, such as credit and rental history. Landlords with questions about the Section 8 program should contact the local Housing Authority in the area where their property is located. From https://www.kts-law.com/section-8-and-source-of-income-protections-sb-329-and-sb-222/ This article is for general information purposes only. Our courtesy notifications are not meant to be exhaustive and do not take the place of legislative services or membership in trade associations. Laws may have changed since this article was published. In California, the laws regarding the requirement for on-site property managers can vary based on the number of units in a building or property. Generally, for buildings with 16 or more residential units, having an on-site manager is often mandatory by law.
California's Department of Real Estate (DRE) mandates certain regulations and standards for property management, particularly for larger residential complexes. These regulations often include the requirement for an on-site manager to be present during specific hours and perform various duties related to tenant management, maintenance, leasing, and ensuring compliance with state and local laws. While it's true that property managers in California might commonly specialize in managing larger properties, such as apartment complexes or multifamily residences, it doesn't necessarily mean that property managers exclusively focus on these types of properties. Many property management companies or individual property managers handle a variety of property types, including single-family homes, condominiums, townhouses, and smaller residential units. However, the specialization and focus of property managers can vary based on their expertise, resources, and business models. Managing single-family homes might be less common for larger property management firms that primarily concentrate on multifamily complexes due to differences in scale and operational requirements. Property owners of single-family homes in California in affluent areas such as Brentwood, Santa Monica, West Los Angeles, Pacific Palisades, Malibu, Marina del Rey, Venice, Westwood, and Sherman Oaks might opt to work with smaller, boutique property management companies or individual property managers who specifically cater to individual residential properties. These managers often provide more personalized services and may have expertise in handling the unique needs of single-family rentals, including maintenance, tenant placement, and compliance with landlord-tenant laws applicable to single-family residences. While it might be less common to find property managers exclusively dedicated to single-family homes, there are certainly property management professionals in California who can effectively manage and oversee these types of residential properties, ensuring compliance with relevant regulations and providing quality services to property owners. Legal Alert from KTS Law
On June 29, 2023, the California State Legislature filed SB 564 with the Secretary of State, which increases statutorily determined fees for serving, executing, and processing certain court documents by Sheriffs’ and Marshals’ offices. California law requires the Legislature to provide for an elected county Sheriff, provide for the duties of the Sheriff, and prescribe fees for serving, executing, and processing required court notices, writs, orders, and other services provided by Sheriffs and Marshals. Sheriffs’ offices are required to serve civil process, including summons, warrants, evictions, wage garnishments, small claims documents, levies on property, writs, and other court orders. As part of this process, they are permitted to collect statutorily set fees to cover the cost of providing these services. The passage of SB 564 has increased those fees for services provided by Sheriffs and Marshals, which is the first fee increase since 2015. Each fee increase is specified in the below chart. Due to these increases in the hard costs of your cases, you will see that the fees advanced and charged to your cases will be increased on your billing statements. These new increased fees will be effective and assessed beginning January 1, 2024. In support of the passage of SB 564, the Legislature has noted that the overall cost of business has, along with the cost of living and inflation, skyrocketed in recent months. The Sheriffs’ and Marshals’ offices have stated that they have had a steady increase in personnel and resource costs since 2014 (when the last fee increase was approved), creating revenue deficits within their civil units. They state that this has compounded the need to increase the fees for the services they provide. Additionally, the bill’s proponents argued that recently enacted legislation, namely AB 2791 (Bloom), Chapter 417, Statutes 2022, which requires officers to accept electronic submission of requests for service of process beginning in 2024, will further increase their costs of business. SB 564 increases the statutorily capped fees Sheriffs’ and Marshals’ Offices can collect to fulfill their legal process services, due to inflation and the increase of costs to provide these services. This bill retains the existing fee waiver process to ensure low-income individuals are not disproportionately impacted by the fee increase. The full text of SB 564 can be viewed here. From KTS This article is for general information purposes only. Our courtesy notifications are not meant to be exhaustive and do not take the place of legislative services or membership in trade associations. Laws may have changed since this article was published. You have a beautiful house in Santa Monica, you're moving, not ready to sell, and it would be great if you could find a wonderful person to rent it... but you're afraid of a nightmare renter, damaging the property, squatting and refusing to pay while you cover all the expenses... You need the best leasing agent and property manager in Santa Monica to help you mitigate the risks! Renting out your home in Santa Monica, like in any city, comes with various considerations and legal responsibilities for property owners. Santa Monica has specific laws and regulations that landlords must adhere to when renting out their property. Here are some key caveats and considerations:
From KTS Law
1. Question: I was told by my tenant that my notice of increase was bad because it was less than 90 days and was over 10%. I thought it was 60 days for rent increases? Is my tenant correct? Answer: Yes, the tenant is correct in this instance. Beginning in 2020, the Civil Code changed to increase the amount of time from 60 days to 90 days for a rent increase over 10% within the last 12 months. If you mail out the increase within the state of California you need to add 5 days for mailing for a total of 95 days’ notice. 2. Question: In our lease agreements we require tenant’s to pay their rent on the first of the month. If the first falls on a holiday, such as Labor Day, do you have to give the tenant’s until midnight on the second to pay the rent or can you still enforce the late fee as of midnight on the first? Answer: Rent is not delinquent unless one business day has expired from the date the rent is due. So if the first is a weekend or holiday, the rent is not late until after one business day has expired. 3. Question: I own a fourplex. Unit B has two cars, one is broken down. What kind of demands can I place on B about the broken-down vehicle? Answer: You can create a lease term by requiring all vehicles to be in operable condition or they will be towed. To put this into place, you need to either serve a Thirty-Day Notice of Change of Terms to a month-to-month agreement or wait until the lease expires and have the new condition in the renewal lease. If your property is in a just cause area, this may not be an option depending on the local ordinance. 4. Question: I rented a condominium unit to a couple on a year’s lease. After one month, they had to move out to take a job out of state. My daughter wants to move in and that’s all right but she will not be paying me rent. Does the tenant still owe me the rent for the lease? Answer: Under California law, a tenant who vacates early is liable for the remainder of the lease period up until the time the premises are re-rented or otherwise taken back by the landlord. When your daughter moves in, the tenant is relieved from further payment. 5. Question: Can I bill my tenant for excessive water usage if I can prove they neglected to fix two leaky faucets for over three months? Answer: Most rental agreements and California law require the tenant to maintain the premises in good condition and repair. Failure to meet their obligations would therefore be a breach of the lease and you should be able to recover all losses suffered, provided you have sufficient proof. 6. Question: New tenants moved in last month. The wife now wants me to take her name off the lease because she is moving out and getting a divorce. They agreed to a one-year lease. What can I do? Answer: You are not legally required to release the wife from liability under the lease. If you do, and the husband is unable to pay or declares bankruptcy, you would not be able to pursue your losses from the wife. After the initial term lease is over, the wife is no longer liable. 7. Question: What can you do about a tenant being cruel to an animal such as keeping a large dog in small quarters outside with the dog crying in the rain, cold and heat? Answer: You have a right to report any criminal or inhumane acts occurring on the rental property. If the mistreatment constitutes a crime, you could evict the tenant for carrying on illegal activity on the premises. 8. Question: Is a phone text an official written notice for a 30-Day Notice? Answer: No, a text would not qualify. A 30-Day Notice must follow statutory requirements and should be served in the same manner as a Notice to Pay Rent or Quit, personal, sub-service or post and mail, although service by certified mail is permitted by California law. A leasing professional who is also involved in property management has "skin in the game" during tenant screening. It means they are more accountable and invested in the process due to their ongoing involvement with the property and its tenants. This situation presents several implications:
For the renter and property owner, there are also several advantages to having the same professional doing leasing and management: Having your leasing professional also manage your property isn’t just a time-saver; it's a strategy for success. Seamless Synergy: When the person who leases your property also manages it, they intimately understand its ins and outs. That means a seamless transition from showcasing the space to handling the day-to-day details of property management. Consistency is Key: One person overseeing both aspects means a unified approach. From screening tenants to maintaining standards, the process remains consistent, ensuring the perfect fit between tenant and property ethos. Communication Champion: Having one point of contact streamlines communication. There's no back-and-forth; it's direct and efficient, ensuring that issues are promptly addressed and tenant relationships are nurtured. Preserving Property Health: A leasing professional who also manages prioritizes the property’s well-being. They’re invested in finding tenants who respect and care for the space, reducing potential damages and fostering a community-driven atmosphere. Elevated Property Value: Long-term tenants contribute to increased property value. When your leasing pro knows how to lease for long-term tenancy and manages with the property’s future in mind, your property becomes a sought-after gem within the community. The Human Touch: It's not just about business; it’s about fostering a community. Having one person handle both roles creates a personal touch. Tenants feel heard and valued, contributing to a positive and harmonious atmosphere. In a nutshell, having your leasing professional also manage your property isn’t just a time-saver; it's a strategy for success. It’s about curating a seamless experience for both property owners and tenants, creating a community that thrives under a shared vision for the property owner's best interests at heart. When one person embodies both roles, they don’t just manage a property; they cultivate a space where tenants feel at home and property owners feel at ease. As a tenant, you may have heard of a security deposit but may not know what it is. In California, a security deposit equals the cost of one month's rent, paid by the tenant to the landlord before moving in. This deposit can be used by the landlord to cover damages or unpaid rent during the tenant's stay. When the tenant leaves, the landlord must give back the security deposit, minus any needed deductions, within 21 days of the move-out. The landlord cannot keep the entire amount of the security deposit without justification. Deductions can only be made for things like unpaid rent, cleaning fees, or repairs required due to damage caused by the tenant or their guests beyond normal wear and tear. The landlord must provide a detailed list of deductions and receipts for any work done. As a tenant, it's essential to keep a copy of the lease agreement. This will help you to avoid any disputes over the refund of your security deposit. Tenants should leave the property in good condition upon moving out to increase the likelihood of receiving a full refund. In summary, a security deposit is equivalent to 1 month's rent paid by a tenant to cover any damages or unpaid rent during their stay. By law, the security deposit must be returned within 21 days. Remember, as a tenant, it's essential to understand your rights and responsibilities regarding the security deposit. Image by Drazen Zigic |
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