Like many other aspects of life over this past year, the pandemic has altered the current tax season. As a landlord, you can claim a lot of deductions, so you should know the amount of the tax refund you can receive. But with all the new laws in place aimed at helping taxpayers through this rough patch, taxes feel more complex than usual.
However, congress put these laws in place to help relieve the economic burden you may be feeling, so it’s worth putting the time and effort into understanding how they can help you get the largest possible tax refund—especially if you’ve been hard hit.
So here are some things to consider as you prepare to file your taxes.
Suspended mortgage payments
With income loss, many people have had trouble meeting their most basic financial obligations. Fortunately, the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) offered some relief last year for property owners in this situation who had federally backed mortgages. It allowed for delayed mortgage payments of up to 180 days, with potential extensions of up to 360 days.
If you took advantage of this relief effort and you itemize your taxes, you’ll have less mortgage interest to deduct. Depending on your situation, it may lower your deduction enough to make a standard deduction a better option for you. It’s worth looking into itemizing versus taking a standard deduction to be sure you maximize your refund. After a rough year, the more money in your pocket, the better.
It’s worth noting that while your mortgage payments were delayed, you likely still owe real estate tax and property insurance, so be sure you research your escrow situation with your mortgage provider to understand your situation.
Economic impact payments
As a result of the economic hardship caused by the pandemic, the government sent out two stimulus payments to taxpayers based on their 2018 or 2019 adjusted gross income. If you didn’t receive this money in the form of direct deposit, prepaid debit card, or paper check—or you received less than the amount you should have received—you can correct this with your tax filing by claiming the Recovery Rebate Credit. The first payment should have been $1,200 per eligible adult and $500 per dependent, and the second should have been $600 for each eligible household member. Note that while this money is not federally taxable, some states are taxing it.
Many people lost full-time employment this year. If you’re in this category and claimed unemployment benefits, you may be surprised to know that those benefits are taxable income. If you didn’t opt in to have your federal taxes withheld from your benefits, this will come due when you file. You aren’t alone if this comes as a surprise. Most people don’t opt to have federal taxes withheld from their benefits, and many won’t expect them.
Earned Income Tax Credit
With a “lookback” provision put in place by congress, taxpayers can choose to use their 2019 or 2020 income—whichever yields a better tax refund—when claiming the Earned Income Tax Credit (EITC). Why is the government offering this temporary option? Due to high unemployment, many people are at risk of not qualifying for this credit at all or receiving a lower credit than they otherwise would have because their earned income totals are too low.
Generally the less you earn, the larger this tax benefit will be, but if you earn too little or nothing, you won’t qualify for the credit’s full potential benefits. If you are unemployed, the unemployment benefits you likely receive do not count toward your earned income. This means that unemployment benefits, while they support your basic needs, may put you below income that would qualify you to claim the full credit or any of the credit. So this lookback provision will help you maximize your refund.
Taking money out of a retirement fund is not ideal; however, if you chose this past year to take money out to make ends meet, the CARES Act protects you from penalty for amounts up to $100,000. It offers a three-year grace period for paying the taxes you owe for the money you withdrew. Additionally, if you’re able to pay back all the money you’ve taken out within three years, you can get back the taxes you paid on that money.
All these tax details complicate things, but they are here to help tax filers who have been unduly affected by this unexpected event. Life before the pandemic was complicated enough. With added difficulty due to the virus, it’s worth considering ways to simplify. Let TenantCloud help you keep track of all your rental units and reduce your management stress.