What tax impact will disasters have for Houston rental property owners?

Once it’s finished, 2017 will be remembered as one of the toughest years in recent memory especially thanks to Hurricane Harvey which formed on August 17th, carving a path of destruction in Houston and along the Gulf Coast until it dissipated on September 3rd.

What Tax Impact Will Natural Disasters Have For Property Owners In Houston?

When a major disaster occurs, the IRS normally tries to help the victims out by extending tax deadlines. After all, no one wants to have to worry about making tax payments or filing returns while their property is underwater or destroyed by a fire. For example, victims of Hurricanes Harvey, Irma, and Maria will not be required to make most types of tax payments and filings until January 31, 2018.

The IRS automatically identifies taxpayers located in a covered disaster area and applies the extended deadlines. Thus, to benefit from the extended deadlines, your rental property simply has to be located in a federally declared major disaster area. There is no need to ask the IRS for a deadline extension. You can determine if an area has been declared a disaster area by checking the FEMA website.

Deducting Losses from a Disaster

Insurance is always the first line of financial defense when disasters occur. However, not all rental properties are fully covered for losses due to natural disasters. Some types of losses may not be covered at all. For example, losses due to floods, hurricanes, and earthquakes may not be covered unless the property owner has obtained a supplemental policy. Even if a loss is covered, the property owner may still have to pay for part of the cost of repairing or replacing the rental property.

Fortunately, any uninsured casualty losses are deductible by rental property owners, subject to certain limitations. A “casualty” is damage, destruction, or loss of property due to an event that is sudden, unexpected, or unusual. Deductible casualty losses can result from many different causes, including (but not limited to):

  • Earthquakes
  • Fires
  • Floods
  • Government-ordered demolition or relocation of a building that is unsafe to use because of a disaster
  • Landslides
  • Sonic booms
  • Storms, including hurricanes and tornadoes
  • Terrorist attacks
  • Vandalism, including vandalism to rental properties by tenants
  • Volcanic eruptions

One thing that all of the events in the above list have in common is that they are sudden—they happen quickly. Suddenness is the hallmark of a casualty loss. Thus, loss of property due to slow, progressive deterioration is not deductible as a casualty loss. For example, the steady weakening or deterioration of a rental building due to normal wind and weather conditions is not a deductible casualty loss.

The Role of Insurance After a Disaster

A rental property owner may take a deduction for casualty losses only to the extent that the loss is not covered by insurance. If the loss is fully covered, there is no deduction. A property owner can’t avoid this rule by not filing an insurance claim. Indeed, a timely insurance claim must be filed, even if it will result in cancellation of the property owner’s policy or an increase in premiums.

The amount of the claimed casualty loss must be reduced by any insurance recovery received, or reasonably expected to be received if it hasn’t yet been paid. If it later turns out that the property owner receives less insurance than expected, the owner can deduct the amount the following year. If the owner receives more insurance payments than expected, the extra amount is included as income for the year in which it is received.

Amount of Casualty Loss Deduction

How much a rental property owner may deduct depends on whether the property was completely or partially destroyed.

If the property is completely destroyed (or stolen), the deduction is calculated as follows:

Adjusted basis – salvage value– insurance proceeds = Deductible loss

Adjusted basis is the property’s original cost, plus the value of any improvements, minus any deductions taken for depreciation or Section 179 expensing. The adjusted basis for rental buildings, land improvements, and landscaping are each determined separately. Adjusted basis should be easily found from a rental property’s depreciation schedules and/or tax returns filed for the property. Salvage value is the value of whatever remains after the property 
is destroyed; in cases of total destruction, this is often nothing.

If the rental property is not completely destroyed, the amount of the casualty loss is the lesser of 1. The property’s adjusted basis or 2. The decrease in the fair market value of the property due to the casualty, minus any salvage value and insurance proceeds.

An appraisal can be used to determine the reduction in fair market value of partly damaged property, as well as salvage value. Alternatively, the cost of cleaning up or making repairs after a casualty can be used as a measure of the decrease in fair market value if all of the following conditions are met:

  • The repairs are actually made
  • The repairs are necessary to bring the property back to the condition it was in before the casualty
  • The amount spent for repairs is not excessive
  • 
The repairs are for the damage only
  • 
The value of the property after the repairs is not greater than its value before the casualty

The amount of a casualty loss to rental property must be calculated separately for each item that is damaged or destroyed. This may include a rental building, landscaping, and other land improvements apart from the building. However, it is not necessary to separately deduct personal items inside a rental property, such as appliances.

Example of Casualty Losses

John’s rental building suffered wind damage due to a hurricane. The hurricane not only damaged the building, but damaged his landscaping—trees and shrubs—as well. John must separately calculate his casualty loss for the building and
 the landscaping. The adjusted basis of the building is $566,000. The trees and shrubs have an adjusted basis of $10,000. John hires an appraiser who determines that the fair market value of the building immediately before the hurricane was $700,000, and was $650,000 immediately afterwards. The fair market value of the trees and shrubs immediately before the casualty was $4000, and afterwards was $500. John’s insurance did not cover hurricane wind damage, so he expects to receive no insurance proceeds.

John calculates his casualty loss for the building as follows:

  • Adjusted basis of rental building before hurricane: $566,000
  • Fair market value before hurricane: $700,000
  • Fair market value after hurricane: 
$650,000
  • Decrease in fair market value: $50,000
  • Amount of loss (line 1 or line 4, whichever is less): $50,000
  • Insurance reimbursement: 
0
  • Deductible casualty loss = $50,000

John separately calculates his loss for the landscaping as follows:

  • Adjusted basis of landscaping before hurricane: $10,000
  • Fair market value before hurricane: $4,000
  • Fair market value after hurricane: 
$500
  • Decrease in fair market value: $3,500
  • Amount of loss (line 1 or line 4, whichever is less): $3,500
  • Insurance reimbursement: 0
  • Deductible casualty loss 
= $3,500

Deducting Losses in Federal Disaster Areas from Prior Year Taxes

Casualty losses are generally deductible in the year in which the casualty occurs. However, if a deductible casualty loss occurs in an area that is declared a federal disaster by the president, the property owner may elect to deduct the loss for the previous year. This will provide a quick tax refund, since the owner will get back part of the tax paid for the prior year. If the owner already filed the tax return for the prior year, an amended return for the year must be filed.

Casualty Gains

It’s quite common for a rental property owner to have a casualty gain rather than a loss. This occurs when the insurance reimbursement an owner receives exceeds the adjusted basis of a property that has been completely destroyed.

Example of Casualty Gains: Part 1

Sheila owns a rental building with a fair market value of $500,000. After years of depreciation deductions, its adjusted basis is $250,000. The building is totally destroyed in a fire. Sheila receives $480,000 in insurance proceeds. She has a $230,000 casualty gain.

A casualty gain is taxable income. However, the property owner need not pay tax on the gain the year it is received if the owner replaces the destroyed property and the cost exceeds the insurance recovery. Instead, the gain is postponed until the replacement property is ultimately sold or otherwise disposed of. The basis of the replacement property is reduced by the amount of this postponed gain.

To qualify as replacement property, the new property must be similar or related in service or use to the property it replaces. However, the rules are more liberal if the destroyed property was located in a federally declared disaster area. In this event, any replacement property acquired for use in any business is treated as replacement property. Moreover, the replacement property doesn’t have to be located in the federally declared disaster area.

To avoid paying tax on a casualty gain, the property must replaced within two years after the close of the first tax year in which insurance proceeds are received. However, if the property is located in a federally declared disaster are, this period is increased to four years.

The property owner doesn’t have to use the insurance proceeds to acquire the replacement property. Rather, the owner has the option of spending the money they receive from the insurance company for other purposes, and borrowing money to buy replacement property.

Example of Casualty Gains: Part 2

Assume that Sheila uses her $480,000 insurance proceeds to construct a new rental building. The new building cost $600,000. Sheila need not pay any tax on her $230,000 casualty gain since she reinvested her entire gain in replacement property. However, the basis of the new building is reduced by $230,000 to $370,000. This way, tax on the gain will have to be paid when Sheila ultimately disposes of the replacement property.

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For professional property management contact Vestpro Residential Services by calling us at (832) 971-1841 or click here to connect with us online.

Property Management Tips – Is It A Bad Thing To Own Too Many Rentals?

Are you thinking about buying rentals to add to your portfolio and are wondering if it can be a bad thing to own too many? The answer to this question is both yes and no.

Yes, it can be a bad thing to own too many rental properties unless you hire a professional property management company to manage those rentals for you.

If you’ve been “on the fence” debating if you should hire a property management company or not to professionally manage your rental properties, this article will provide you with reasons to hire a property manager.

Rent Collection

One of the biggest problems most property owners who own homes or multi-family properties have is collecting rent from their tenants each month especially when their tenants fall behind on paying.

Thankfully when you hire Vestpro Residential Services to manage your Houston Texas Rental Properties you can have confidence that your rentals will be professionally managed and rent will be collected from your tenants on time each month eliminating the need for you to contact tenants or start collections against them if they don’t pay.

Maintenance

Another big problem for some owners has been the issue of maintenance because, it’s not always easy to handle maintenance issues if you own multiple properties.

With Vestpro on your side you will have peace of mind in knowing that your tenants will call us when they have maintenance issues and this will also help you keep tenants as well because, your tenants will know that the can depend on the property management company to solve problems when they occur instead of hearing making empty promises.

Customer Service

Last of all, but most important is customer service.

Many property owners offer customer service and poor support so that whenever there is an issue at one or more of their properties it will go unresolved for weeks or months.

At Vestpro we take pride in offering great customer service so that if your tenants call in with an issue they will be served by true customer service professionals every time.

Get Professional Houston Texas Property Management

To learn more about how Houston Texas Property Management will make your life easier contact Vestpro Residential Services today by calling us at (832) 971-1841 or click here to contact us online.

 

Need property management? Call us at 832-971-1841 or connect with us through our website.

 

 

Tips for Getting Your Rental Property Ready for Fall Weather

Fall 2017 is officially here and with it comes a change in weather! If your rental property isn’t ready for the change in weather it could be left unprotected. Thankfully, you can get ready for fall weather simply by following the tips in this article.

Do end-of-season yard maintenance.This doesn’t just include raking the leaves (although that’s important, too!). It also means trimming the hedges, fertilizing the grass, trimming unwieldy branches, and removing any weeds or roots that may impact siding, patios, and walkways.

Pack up and store outdoor items.It may seem a little premature to do now–but if the recent spate of hurricanes is any indication of what the rest of this season will look like, it’s a good idea to start now. Clean, pack up, and store outdoor furniture, grills, and other items that could be damaged by late fall or winter weather. If your property is located in a hurricane-prone area, be sure to tie down any large items that could wash or blow away.

Drain water lines.If your property is located in a cold-weather climate, now is a good time to turn off the water leading to outdoor spigots. Turn off sprinkler systems and drain outdoor hoses to prevent water from freezing and bursting the lines.

Clear debris from gutters.One of the best things about fall is watching leaves transform into beautiful shades of red, orange, and yellow. But it only lasts for so long–and then those leaves fall, clogging gutters in the process. Be sure to clear all debris from rain gutters to prevent water from pooling–or worse, causing roof damage.

Inspect the roof.Climbing up a ladder and getting onto the roof is not for the faint of heart, but it’s a worthwhile exercise to ensure that the roof is in good condition when you’re heading into the winter months. Loose or missing shingles are easier to replace during the fall. Otherwise, you could face costly roof repairs caused by hail, sleet, and snow.

Seal windows and install storm doors.Aging seams and weather stripping around windows and doors often lets cold air in and warm air out. This drives up heating costs, which can add up for landlords and HOAs that pay for heat as part of their fees. Seal drafty windows and doors with caulk, install new windows if necessary, and swap out screens with storm doors and windows.

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For professional property management contact us today by calling (832) 498-0016 or click here to connect with us online.

 

Reasons To Hire A Property Management Company

Over time as you own more rental properties in Houston Texas and the surrounding areas you will find that it will become necessary for you to hire a property management company because, a qualified property management company will save you the time, money and hassle of managing your rentals yourself so you can focus on growing your portfolio of rental properties.

If you’re not sure that hiring a property management company is the right choice for you to make or not here are reasons to hire a property manager:

Set the Right Correct Rates for Your Rentals

One of the biggest problems many property owners face is setting the incorrect rates for their Income Properties.

We are your biggest asset in this area thanks to our market research, which will guarantee that we rent your properties for the right rates, insuring you have the right balance between stable monthly income and super low vacancy rate.

Collect Your Rent on Time

Another area where we will be an asset to your Income Property portfolio is rent collection.

Over the years we’ve developed the right internal systems which will insure that your rent is collected on time every single month and deposited into your account or mailed to you.

Effective Property Marketing

As you grow your portfolio of properties you will find that one of the most time consuming duties is marketing a home, plex or property when you have a vacancy.

Vestpro has solved this problem for you. Effective property marketing is another of our biggest assets which will save you the time and hassle of property marketing yourself.

Choose the Right Tenants for Your Properties

Last of all, but most important, at Vestpro we will choose the right tenants for your properties by performing the following tasks including: credit check, income verification and reference checks so you don’t have to.

Get Property Management Here

For professional property management contact Vestpro Residential Services today by calling us at (832) 971-1841 or click here to connect with us online. 

 

 

Property Management Tips – How to remove a stain from carpet

One of your rental properties just came up for rent and after inspecting it you’ve found that more than one room in the property has stains in the carpeting.

What do you do?

Hire a professional carpet cleaner to clean the carpet?

The good news is that you can easily remove stains from any carpet yourself simply by following the tips in this video.

Get Property Management Here

No time to manage your rental properties yourself? No problem! Get professional property management by calling Vestpro Residential Services by calling us at (832) 498-0016 or click here to connect with us online.

Are you showing your appreciation to your loyal tenants?

During the process of owning rental properties in the Houston Texas area, or elsewhere in the United States, one of the very best things you can do is show your appreciation to your loyal tenants because, it’s easier to keep a long term tenant than it is to put your rental property back on the market and search for new renters that’s why in this article we will share with you our tips for showing your appreciation to your loyal tenants.

Host events

Hosting an event redefines your presence with your tenants. Beyond the person who collects their rent checks every month, you become a friendly and generous person. Bringing tenants together is both fun and fosters a sense of community, making them feel +more comfortable and connected to their residence. When people have personal ties, it makes leaving a less casual decision.

One great option is a summer barbecue. Even if you only have a few tenants, inviting them to a local park for a day of food and fun can adds the kind of personal touch to your business that will go a long way in bridging the gap between you and your tenants, and even between the tenants themselves. However, you should express caution where food is involved. Be aware of any food allergies or special diets among your guests. Have a black bean patty ready for your vegan tenant, or a lactose free cheese for your lactose-intolerant tenant. They will remember that extra kindness.

Create a beautiful environment

If your tenant feels good about where they live, they are far more likely to stay in place. Go above and beyond your state’s mandated . A clean and well-maintained community will help guide each tenant’s decision to remain with you, and a proactive approach to maintenance and repairs matters. Pay extra attention to entryways and porch spaces; peeling paint and cobwebs can make your property feel shabby. Stay on top of cleaning and repairs and you will not regret it.

Give personal gifts

A small token of appreciation on a tenant’s anniversary with the community or on their birthday, such as a gift basket or a gift card, are always good ideas. If you are in a position to be better acquainted with your tenant, a personal gift can mean even more.

If you know that a tenant enjoys classical music, a gift of tickets to a symphony or an outdoor concert builds a deep, personal connection that could they give staying with you extra consideration when it’s time to renew their lease.

Small tokens such as non-denominational holiday cards or birthday cards are a nice touch and another way to let them know you care.

Leverage referrals

Studies show that tenants who have friends nearby tend to stay longer. If you have several properties in the area, you could benefit not only in tenant retention, but also by asking your tenant to unofficially function as a marketer for you. If your tenant loves their home, they are more likely to refer a friend to you.

Get Property Management Here

For affordable and professional property management contact Vestpro Residential Services today by calling us at (832) 971-1841, connect with us online, or find us on Facebook.

 

5 Tips for Filling Vacancies at Your Houston Texas Rental Property

By VestPro Residential Services

HOUSTON, TX. – Do you own a Houston Texas Rental Property that’s not attracting the attention of renters and you can’t figure out why? Although this is frustrating when it happens the reality is that there could be one or more reasons why renters are showing a lack of interest in your rental property and the following steps will help you to get to the bottom of the problem and fix it.

Step #1 – Check Your Rent

Although every landlord wants to rent their Houston Texas Rental Property for the most money possible the reality is that some people may be listing their rentals for more than they should.

To figure out what you should be renting your property for you should do a comparable analysis of similar rentals in your area to determine if you should consider lowering your rent a little in order to attract more tenants.

Step #2 – Improve Your Rental Ads

Let’s face it, advertising is the lifeblood of our business because it’s what helps renters find our Houston Texas Rental Properties.

Sadly, many landlords are running poor advertisements that are turning away potential renters rather than attracting them.

Before running another rental ad you should first take better pictures and video of your rental property then take a look at your ad copy, rewrite the headline, and revise the body copy so that your advertisement talks about all of the benefits, features, and amenities that your rental offers prospective tenants.

Houston Texas Rental Property

Step #3 – Bring Your Houston Texas Rental Property Up To Date

If the last time you updated your Houston Texas Rental Property was before the start of the millennium, you should start making some updates now because new flooring, window coverings, appliances and fixtures in a rental property can go the extra mile with making a rental feel fresh, new, and updated.

Step #4 – Think About Allowing Pets

In 2017 there are more renters out there than ever before who are searching for rental properties that will allow pets. If you don’t allow pets at your Houston Texas Rental Property you should consider changing your pet policy because you will open up your rental to a larger pool of prospective tenants, just make sure to update your lease agreement before renting to someone with a pet.

Step #5 – Ask Your Current Tenants for Referrals

Last of all, but most important, if you have tenants living in your other rental properties you should consider asking them for referrals because the chances are that they might know someone who is looking for a rental and this will save you the time/money and hassle of having to advertise your Houston Rental Property.

Get Houston Texas Property Management

For affordable and reliable property management for your Houston Texas Rental Property contact VestPro Residential Services by calling us at (832) 971-1841 or click here to connect with us online.

Is It Time For You To Consider Houston Property Management?

Get Houston Property Management

There’s no denying that now is a great time to invest in local real estate thanks to great prices and low mortgage interest rates but as you grow your portfolio or rental properties you will also face more responsibility if you are managing those properties yourself and this is why you should consider Houston Property Management.

If you’ve been debating hiring a Houston Property Manager here’s how we can save you the time, money and hassle of managing rental properties yourself.

On Time Rent Collection

When you hire a Houston Property Manager you can rely on them for collecting your rent on time every month and either depositing the rent into your bank account or mailing you a check each month.

A property manager will also eliminate all rent collection delays and or excuses that traditionally come with rent collection for some owners plus insure that your rent is collected professionally each month without you having to go through the hassle of rent collection yourself. 

Professional Property Management

Your rental property will be professionally managed by a qualified property manager including all of the additional time consuming aspects of property management like maintenance requests and other service related issues.

Excellent Customer Service

Sometimes having an actual human being to call your tenants back matters most in the world of property management and when you hire a professional Houston Property Manager you can have confidence that all of your tenants will be responded to in a timely manner when they call or email the property manager.

Excellent Backup For You

Another benefit of hiring an experienced Houston Property Manager is that you can depend on them to be on top of any issues related to your property so that regardless if you live in Portland or are out of state your home or multi-family rental property will be professionally managed by caring professionals.

More Time to Grow Your Portfolio

Last of all, but most important, when you hire a professional Houston Property Manager you will have more time to focus on growing your portfolio of rental properties and focus on the next rental that you want to purchase for your portfolio.

Get Houston Property Management 

To learn more about our Houston Property Management Services contact Vestpro Residential Services today by calling us at (832) 498-0016 or click here to connect with us online.

 

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