Are any tax relief programs available for landlords impacted by COVID-19 in 2021?
The COVID-19 pandemic affected businesses large and small, including independent rental property owners. Many tenants struggled to make ends meet, leading some renters to fall behind on payments. This, of course, affected property owners, who depend on rental income for mortgage payments and other fixed expenses.
Landlords may benefit from various federal relief programs, including small business tax credits under the American Rescue Plan Act of 2021. Small- and mid-sized employers may claim refundable credits for providing paid sick and family leave time related to COVID-19 between April 1 and September 30.
Talk to a tax or legal professional about which relief measures apply to your rental property business. Understanding available relief programs can help you make more strategic decisions so you can Lease Confidently.
Do EIDL or PPP funds impact taxes for landlords?
Economic Injury Disaster Loans (EIDL) to small businesses from the Small Business Administration helped many landlords by providing capital during the pandemic. While EIDLs were initially designated as taxable income, these proceeds are no longer considered taxable income at the federal level under the Consolidated Appropriations Act.
Small business loans under the Paycheck Protection Program (PPP) include loan forgiveness under certain circumstances. While IRS rules generally require forgiven debt to be counted as taxable income, qualifying employers do not need to report the forgiven amount to the IRS.
In addition, expenses covered by PPP loans remain tax-deductible, as long as they meet other deductibility requirements. Some states, however, require businesses to report some or all of the forgiven loan amount as income.
Can landlords deduct losses related to missed rent payments by tenants?
The answer depends on whether you report taxes on a cash basis or accrual basis. Under the accrual method, you report income and expenses when due and may deduct uncollected rent.
On a cash basis, you report income upon receipt and expenses upon payment. As a result, the IRS says you cannot deduct uncollected rent if you are a cash basis taxpayer. You may, however, have other deductible expenses related to missed rent payments, such as legal expenses incurred in trying to collect unpaid rents.
Does Incorporation make taxes easier for landlords?
A separate, legal business entity for your rental property business can help keep your business and personal income separate. In addition to personal liability protection, there are also several potential tax advantages of Incorporation.
Incorporation can minimize the risk that your business earnings will push you into a higher personal income tax bracket. In addition, you may take advantage of business-specific tax credits and tax deductions for ordinary and reasonable business expenses not available to individual taxpayers. Tax advantages may vary depending on the type of business entity. Check with an attorney or your tax professional to see whether incorporating your rental property business makes sense.
If you change your business type or incorporate in the middle of a tax year and were operating your rental property business and earning income before incorporating, you will need to file two separate tax returns for each time period.
What documents do landlords need to prepare for taxes?
Having the right documents and records on hand when it comes time to file your year-end tax return can streamline the process for everyone involved. As a rental property owner, you can prepare for tax time by gathering the following documents:
- Prior years’ tax records.
- Tenant leases.
- Property titles or deeds.
- Legal documents, such as incorporation records and inspection reports.
- Business insurance policies.
- Receipts for rent payments.
- Records of security deposits.
- Documentation of expenses, including marketing, mortgage interest, repairs, maintenance, landlord-provided utilities, service fees, office expenses, etc.
- Payroll expenses if you have employees or independent contractors.
- Business travel expenses.
What are the important tax deadlines remaining for 2021 and 2022?
Most tax deadlines for 2021 have already passed. The final deadline for paying 2021 estimated quarterly taxes for the fourth quarter is Jan. 18, 2022.
The deadline for filing 2021 year-end tax returns is April 15, 2022. While tax deadlines were extended in 2020 and 2021 due to the COVID-19 pandemic, the IRS has given no indication that it intends to provide similar extensions in 2022, so taxpayers should plan accordingly. Quarterly estimated tax payments in 2022 for small business owners, including rental property owners, will be due:
- April 15, 2022.
- June 15, 2022.
- Sept. 15, 2022.
- Jan. 16, 2023 (for the fourth quarter of 2022).
Depending on your business structure and whether you have employees or independent contractors helping with property management or other tasks, there may be additional tax deadline considerations. In addition, if you took advantage of the CARES Act option to defer payment of the employer’s portion of Social Security taxes which otherwise would have been due for the 2020 tax year, you must pay one-half of the deferred amount by Dec. 31, 2021, and the remainder by Dec. 31, 2022.
Whether you’ve been leasing property for decades or a few months, taxes are confusing. Tax legal help can help you remain in compliance with changing IRS regulations. Every landlord’s situation is different. If you have questions, ask a lawyer.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.