When it comes to rental property, there’s a lot that you can do upfront to help ensure that you’ll be in for a smooth and relatively stress-free journey. To prepare for the worst, it is essential for every tenant and landlord to understand the 3 Day Eviction Notice and how the eviction process works.
Important preventative measures include having an airtight screening process, clear communication, and ensuring that you’re protected by a rental agreement.
But sometimes, despite the best efforts of even the most scrupulous landlord or property manager, there will be situations where people fall through the cracks. Even the most carefully vetted tenant can go wrong, unexpectedly failing to pay the rent on time or violating the lease.
While seeking a peaceful resolution is always the best course of action, some situations can’t be resolved. In these cases, a landlord may have no choice but to evict a tenant.
Evictions, for the most part, tend to be relatively straightforward, but this process also contains specific steps that landlords are required to follow, by law. For landlords, it’s extremely important to ensure that you operate within the requirements of the law, and always follow the correct process to the letter.
In this guide –part-one in our series, we’re going to show you the first step in beginning an eviction that’s in compliance with the law. Let’s begin with a look at the 3-day notice, the notice that landlords are required to give before they can begin the eviction proceedings.
In Colorado, the only way that a landlord can evict a tenant from any type of rental property is by going through what’s known as a ‘Forced Entry and Detainer (FED).’ This involves taking legal action to obtain a court order requiring the tenant to vacate the property. To put it another way, an eviction is essentially a lawsuit filed in court by a landlord in order to remove a tenant from a rental property.
Before a landlord can begin the eviction proceedings, though, they must first serve the tenant with a 3-day Notice. This notice should state the landlord’s intention to evict the tenant, and inform the tenant that the must fix the lease violation or vacate the property within 3 days.
Note: For tenants who are on a month-to-month lease, a landlord can terminate the lease by giving the tenant written notice of the intent to terminate ten days before the last day of the rental month. If there’s a written lease that’s for a longer time period, the notification period should be changed to the longer time.
While landlords are within their rights to evict tenants from their property, this can only be done for a few select reasons.
A landlord may initiate an action to evict the tenant for the following reasons:
If a tenant fails to pay the rent on time, then a landlord can move forward with eviction proceedings.
A landlord can also evict a tenant if they violate the lease agreement in some way. This is one reason why it’s vitally important for landlords to ensure that they have lease agreements, in writing, that their tenant is required to sign at the time of move-in. Without an agreement, it’s much more difficult to enforce the rules, and they may not hold up in court.
This could include:
While many landlords may feel tempted to proceed with evictions their own way, taking drastic measures such as forcibly removing the tenant by changing the locks, it’s important to note that this type of action is never a good idea.
For landlords, failing to follow the eviction process as outlined in the law will only delay the eviction proceedings, and could harm your case should you end up before a judge.
Here’s a look at some of the actions that landlords should never take:
So let’s get down to it. Every eviction must begin with a written 3 day eviction demand notice. It’s the law, and following this process will keep you in compliance.
Here’s how you can start a lawful eviction process.
Before filing an eviction action in court, the landlord must give the tenant notice of their intention to evict them by serving the tenant a ‘Demand for Compliance or Right to Possession’ notice, also known as a ‘3-day Notice.’
The 3-day Notice should state that the tenant must either fix (cure) the lease violation, or vacate the property within three days (not including the date of posting).
The 3-day Notice must be written but does not have to be a formal document. It should, however, contain the following:
As soon as possible after serving the 3-day Notice, the landlord should also mail a copy to the tenant at their mailing address. Ideally, this should be done by certified or registered mail.
Before the landlord can initiate an eviction in court, the 3-day Notice must have been posted for three days, not including the day of posting. Saturdays, Sundays and legal holidays do count for the three days, but if the third day falls on a Sunday, it’s a good idea to give the tenant through Monday to pay the rent or fix the violation.
Once you’ve posted the notice, the tenant will have a short window of time to fix the violation. This means that if they’re late on the rent, then they should pay it within the three-day window and the eviction will be called off.
It’s important to note that some lease violations cannot be cured, and therefore if the tenant doesn’t vacate the rental by the end of three days, then they can be served an eviction notice. However, even if a tenant does vacate the property during this timeframe, they are still responsible for past-due rent and for rent through the lease term. A landlord or property manager may still follow through with the eviction proceedings and could obtain a judgement for the amount that’s owed.
If the tenant does not cure the violation or surrender the property, the landlord can then send out the second notice. This one is known as a ‘Notice to Quit for Repeat Violation.’ This notice does not need to give the tenant a right to cure the violation.
For this reason, it’s important to be specific regarding which terms the tenant is violating. When posting a ‘Notice to Quit for Repeat Violation,’ it is a good idea to reference the first 3-day Notice just so there’s no confusion.
Finally, as a landlord, you should make sure your 3-day notice contains all of required information, and is served correctly. If the document is incomplete or served incorrectly, your tenant could show up at court to contest the case. In some cases, the judge may dismiss your case and you’ll have to start over. In some cases, you could also have to pay the tenant’s litigation cost and attorney fees.
As a landlord, it’s easy to feel overwhelmed at the eviction process. But your best course of action is to ensure that you proceed with the eviction in a way that’s in compliance with the law. If you’re uncertain about any steps in the process, or if you’d like to ensure that you get your 3-day notice right, you could always consult with an attorney just to play it safe.
For most landlords, being able to deduct operating expenses can make a big difference on the amount of tax that they owe. Understanding the rental property tax deductions can be complicated, but well worth the time.
But when it comes to fully utilizing those rental property tax deductions, 
that’s where many landlords struggle. After all, there are so many different expenses that you can claim! Additionally, the IRS doesn’t have an exhaustive list of all the eligible expenses, just that they must meet their requirements to qualify as deductible. This means that they must be ordinary and necessary, current, directly related to your rental activity, and reasonable in amount.
Here’s a look at what you should know about operating expenses, and how you can claim them on your taxes.
Deductions fall into one of two different categories: current and capital.
Now that we’ve got that out of the way, let’s take a look at some of the deductions that you may be eligible for. Make sure you’re not forgetting anything this year!
Some valuable rental property tax deductions that landlords can claim include:
If you purchase something or subscribe to a service that you use for both business and personal use, you can deduct only the portion that you use for business-related purposes. To determine this, you’ll need to pinpoint how much time you use your item for rental-related purposes, and how much for personal use. Then, divide the cost between the two purposes and deduct the rental-related portion. So, say for example that you use your internet connection for official business purposes 60 percent of the time. In this case, you can only deduct 60 percent of the cost of service.
The IRS has created specific rules for certain operating expenses, that spell out which expenses are tax deductible, how much is able to be deducted, and in some cases, even stipulate specific record-keeping requirements.
Here’s a look at the main areas that include special rules and requirements.
For more information on these rental property tax deductions, and the rules surrounding them, visit the IRS Publication 463: Travel, Entertainment, Gift, and Car Expenses.
Your best option when it comes to claiming them is to be diligent with your record-keeping. This means keeping track of all of your receipts, invoices, and bills as expenses arise. Likewise, be sure to use a separate checking account for your expenses, and try to obtain documentation for every transaction that occurs.
As a landlord, there are a lot of deductions that you’re most likely eligible for.
Since taxes can easily eat into a significant portion of your rental income (up to 50 percent according to some estimates!) experienced investors know that taking advantage of the available deductions is key to maximizing their profits. Don’t miss out! Make this year the year that you save.
And don’t forget, if you’re stuck, it’s always a good idea to work with an experienced CPA –ideally someone who’s experienced in preparing taxes for landlords. A good accountant will be able to inform you of tax deductions that you may be eligible for and can keep you from making many common pitfalls that landlords often make when filing, helping you to save when tax time rolls around.
Please Note: While this article contains information that we’ve learned from classes and from working with our clients over the years, please keep in mind that we are not tax professionals. This information is intended to inform and to guide only, and it is not meant to serve in place of tax advice from a licensed tax professional. These principles should only be applied in conjunction with a CPA. To learn more about depreciation as it applies to your own financial situation, please consult a tax professional.
As the proud owner of rental property, there’s a good chance that you know about and are already using one of the most well-known and popular tax deductions available to landlords:
Repairs are a much-loved deduction, and for many landlords, they represent a significant saving come tax time. They’re popular thanks to their value, as well as the fact that they’re a tangible expense. It’s easy to remember these expenses when you’re doing taxes, and not too difficult to save the receipts throughout the year –especially if you’re organized.
But while this deduction is indeed popular, some landlords aren’t aware that not every repair should be treated the same. While some are able to be fully deducted in the year that they’re incurred, for others, how they’re able to be deducted will vary depending on a few different factors.
The main difference in how these expenditures are treated comes down to one important distinction: is it a repair, or is it an improvement? The IRS also outlines several “safe harbors,” as they call them, under which you can fully deduct many repairs that would otherwise have to be depreciated more slowly over time.
Although making sense of the different distinctions and nuances of the IRS’ guidelines can get a bit complicated, in this guide, we’ll attempt to uncover the main points for classifying and deducting repairs and improvement expenses for your rental.
While rental repairs and improvements are both able to be deducted, the IRS has different rules regarding how they must be claimed.
Repairs are operating expenses that are deemed ordinary, necessary, and reasonable in amount. As long as they meet these requirements, they’re able to be fully deducted in the year that they’re incurred.
However, certain types of upkeep aren’t considered to be repairs; but instead, need to be classified as capital improvements. Improvements are things that add value to your property or benefit your property for more than one year.
Since the benefit to your property will extend beyond one year, they cannot be depreciated in just a single year, but instead must be spread out over the course of a longer period of time and claimed a little at a time on your tax return each year.
In most cases, you’re better off from a tax point of view if you can classify an expense as a repair, rather than an improvement, as you’ll be able to deduct the entire expense all at once instead of having to slowly deduct it over a long period of time. Of course, this doesn’t mean that you should never do improvements on your property, only that from a tax perspective, repairs offer more benefits.
Now, how can you tell the difference between repairs and improvements?
The IRS’ regulations spell out rules for what constitutes a repair and what is considered an improvement. This guide is fairly long, however, and quite complicated as well.
Still, generally speaking, the IRS uses the following categories to define what qualifies as a capital expense.
According to the IRS, expenses that fall under these categories must be depreciated as a rental property tax deduction.
Here’s a look at some examples of improvements from the IRS:
Additions:
Lawn & Grounds:
Miscellaneous:
Heating & Air Conditioning:
Plumbing:
Interior Improvements
Insulation
For most landlords, being able to deduct expenses all at once in the year that they were incurred is always preferable; and better than having to depreciate them.
Thankfully, the IRS provides what’s known as “safe harbors” –conditions that landlords can use to deduct certain rental-related expenses –in one year.
Here’s a look at these three safe harbors now:
If an expense falls under any of the safe harbors, then it can be treated as a currently deductible expense and deducted entirely in the year that it occurs.
In short, these safe harbors make life easier and allow you to deduct expenses that otherwise would have to be depreciated.
In order to determine whether an expense qualifies as a deduction, first, determine whether it falls under one of the safe harbor provisions. Secondly, if no safe harbors apply, you’ll then want to determine whether the expense is a deductible repair or an improvement.
With this in mind, here’s a look at the three safe harbors now:
There are two main limitations on routine maintenance: the ten-year rule and the no betterments rule.
If your expenses don’t fall under a safe harbor, then you’ll need to determine whether they are improvements or repairs. While repairs can be deducted in one year, improvements must be depreciated and deducted over several years.
In order to determine whether it’s a repair or improvement, you’ll need to delve into the IRS’ repair regulations and determine what the unit of property (UOP) in question is. You’ll then want to decide whether the expense resulted in an improvement.
Under IRS regulations, buildings must be divided up into nine different UOPs.
Here’s a look at them now:
Generally speaking, the larger the UOP, the more likely the work will be considered a repair, rather than an improvement.
Joseph Lewis, CPA and Partner at Isler CPA explains this concept well in his article: Rental Property Repairs: to Expense or to Capitalize? That Is the Question. “Work on an engine of a vehicle is more likely to be classified as an expense that must be capitalized if the engine is classified a separate UOP. By contrast, if the UOP is the vehicle, the engine work has a better chance of passing muster as a repair.”
Any work done to any of the above building systems that improves that system in some way must be depreciated.
Repairs and maintenance are different things, but you’ll want to deduct both of them on IRS Schedule E. You’re required to list each type of expense separately, so try to keep track of them throughout the year as well.
At the end of the day, landlords benefit more from a tax perspective by taking advantage of the safe harbors, or making repairs; rather than upgrades. While upgrades can be a necessary part of owning a rental, it’s always a good idea to consider the long-term tax implications when deciding whether to repair or replace an item.
Here are some additional resources on rental property tax deductions and repairs and improvements.
Please Note: While this article contains information that we’ve learned from classes and from working with our clients over the years, please keep in mind that we are not tax professionals. This information is intended to inform and to guide only, and it is not meant to serve in place of tax advice from a licensed tax professional. These principles should only be applied in conjunction with a CPA. To learn more about depreciation as it applies to your own financial situation, please consult a tax professional.
Taxes aren’t exactly something that we look forward to, but for landlords and real estate investors, at least, there may be some reason to rejoice. If you own rental property, there are landlord tax deductions that can help you out.
The tax code tends to favor real estate investors and having rental property can open the door to a tremendous number of tax deductions and credits that you could be eligible for, all of which can make a significant dent in your tax bill.
The key to maximizing your income with rental property is taking advantage of all of the tax benefits that are offered to you. Yet many landlords are unaware of just how many there are!
Some deductions are more valuable than others, but overall, these write-offs can help you to increase your rental revenue considerably. Of course, how much you stand to benefit will vary widely depending on a range of factors including your filing status (married, single, joint-filing-separately?), tax status (business, investment?), tax bracket, the number of properties that you own, and how you structure your investments (LLC, sole proprietorship?).
If you’re a first-time landlord, or even an experienced investor, having a firm grasp of the tax code –as it applies to you will prove to be a tremendous advantage. It’ll help you to know how you should structure your investments, allow you to accurately calculate your taxes for prospective investments to see if a property’s worth investing in, and if you have an accountant, can help you to ensure that you both are on the same page.
With this in mind, let’s take a look at the basics of the tax code, as it applies to landlords. Read on for an overview of the tenets of taxes, and to see which deductions that you may be able to claim.
First, let’s take a look at the different types of taxes that you’re required to pay as a landlord:
Here’s a look at each type of tax now.
Rental income that you receive is taxable and subject to federal income tax. When you file your annual tax return, you’ll add your net rental income to your other income for the year, such as income from your job or investment income.
Additionally, you may be subject to state income tax as well. Forty-three states also have income taxes, with the exceptions being Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. For more information on your state’s income tax law, visit Tax Sites, or your state tax agency’s website.
If you sell a rental property, the profit on the sale is added to your income for the year and is also subject to tax. If you’ve owned the rental for more than one year, this income will be taxed at capital gains rates, which in most cases, are lower than income tax rates. However, if you sell your property and use the proceeds to purchase a similar property, using what’s known as a like-kind exchange, or a Section 1031, you can defer the tax on your profits.
Many landlords are also required to pay Social Security and Medicare payroll taxes, or Federal Insurance Contributions Act (FICA). While employees pay half of these taxes and employers pay the other half, self-employed people must pay them all themselves.
These are two separate taxes. Let’s look at each now:
Combined Social Security and Medicare tax is 15.3%, up to the Social Security tax ceiling –whether you’re self-employed or an employee.
If you hire employees to work in your rental property business, you may have to pay and withhold Social Security and Medicare taxes. Your share of these taxes, though, as an employer is deductible.
However, income you earn from a rental property is not subject to Social Security and Medicare taxes, even if your rental activities constitute a business for tax purposes. The exception to this is if you’re a landlord who provides “substantial services” to your tenants, such as the services provided by hotels or bed and breakfasts.
Net investment income tax is a 3.8% tax that affects many higher-income landlords. This is a tax on unearned income including rental income and gains from selling property. If your adjusted gross income exceeds $200,000 if you’re single, or $250,000 if you’re married filing jointly, you will be subject to this tax.
Finally, if you own property, you’ll have to pay property tax. These are taxes imposed by cities, counties, or other jurisdictions, and are a tax on the value of your rental.
Of course, your rental income includes the rent that your tenants pay, but it can also include other payments as well.
One of the great things about owning investment property is the wealth of tax deductions that are available for landlords.
The law allows you to subtract operating expenses for your rental –including repairs and maintenance, as well as other expenses including mortgage interest and depreciation from your gross rental income, to determine your taxable income.
Here’s a look at some of the deductions that landlords are able to take:
In many cases, landlords end up with so many deductions that they show a net loss when calculating their gross rental income. In these cases, you’ll owe no tax on your rental income. This tends to be more common during the first few years of owning rental property, when the rents may be lower, and you may be claiming more for depreciation.
In fact, in some cases, you may show a loss for tax purposes, even if you’ve actually earned more income than you’ve paid in expenses –due to the often-significant deductions of mortgage interest and depreciation.
Rental properties can be considered a business, an investment, or in rare cases, a not-for-profit activity.
If your rental activities qualify as a business, you’re entitled to all the landlord tax deductions listed above, however, if your rentals are considered an investment, you’ll lose certain deductions. Of course, landlord tax deductions for not-for-profits are extremely limited.
Your tax status will be determined by how much time and effort you put into your rental activities, and whether you earn profits each year.
Keep in mind that how you structure your rental property purchases will affect the type of tax returns that you must file.
The main ownership options for most landlords are:
These different types of ownership can be divided into two main categories; individual ownership and ownership through a business entity.
Small landlords, those who own one to ten residential rentals, generally own their properties as individuals. In fact, according to one government survey, individuals owned 83% of the 15.7 million rental housing properties with fewer than 50 units. (Department of Housing and Urban Development and Department of Commerce, U.S. Census Bureau, Residential Finance Survey: 2001 (Washington, DC: 2005).)
Partnerships, limited partnerships, LLCs, and S corporations, on the other hand, are all “pass-through” entities. This means that the entity itself doesn’t pay taxes, but the profits or losses are passed through to the owners who include them on their tax returns.
Because pass-through taxation permits property owners to deduct losses from their personal taxes, it’s generally considered the best form of taxation for real estate ownership. And with the new Tax Cuts and Jobs Act, there may be even more incentive for investors to structure their purchases this way. Pass through entities with “qualified business income” are now eligible for a 20% deduction.
Sure, it’s not our favorite topic, but since taxes are often one of the single biggest outgoing expenses that we have each year, aside from the mortgage itself, looking for ways to reduce your tax bill can often result in significant savings.
If you’re a landlord, it’s worth spending some time familiarizing yourself with the tax code, to find out if you’re saving as much in tax as you could be. It’s also a good idea to consult with a qualified CPA, to ensure that you’re structuring your purchases in a way that’ll be most beneficial for your tax situation, and to make sure you’re not missing out on any valuable tax deductions that could make a big difference in the amount of tax that you owe.
Many thanks to Stephen Fishman's Every Landlord's Tax Deduction Guide, for providing clear, concise information on taxes as they pertain to landlords. See Every Landlord’s Tax Guide to learn more about taxes for landlords.
Please Note: While this article contains information that we’ve learned from classes and from working with our clients over the years, please keep in mind that we are not legal or tax professionals. This information is intended to inform and to guide only, and it is not meant to serve in place of tax advice from a licensed tax professional. These principles should only be applied in conjunction with a CPA. To learn more about depreciation as it applies to your own financial situation, please consult a tax professional.
After three consecutive down quarters, the Colorado Springs Rental Market experienced some nice gains for the second quarter of 2019.
The overall volume of rentals is up nearly 41% for all of El Paso County in the Second Quarter of 2019. Q2 is traditionally a strong quarter but this kind of jump is significant.
The average price per square foot is at 0.88 cents. This is down a little bit from the previous quarter but this number remains consistently positive over the previous 2 years.
We used the data from the first two quarters of 2019 to look at the most popular zip codes as well as the most affordable zip codes. We are using zip code information as opposed to neighborhood information because we feel like it gives us a more realistic picture. A hot neighborhood tends to generate activity in the surrounding neighborhoods as well. So, zip codes seemed to be the best way to capture those types of emerging trends.
From a sheer volume standpoint, the 80817 zip code takes the prize for the most properties rent in the first half of 2019 at 117 units. This doesn't really come as much of a surprise because this is Fountain, Colorado the closest zip code to Fort Carson.
Fountain, Colorado has seen rapid growth over the past five years. The area has seen new residential projects like "Lorson Ranch" as well as a number of new commercial projects. Amenities like shopping and restaurants have grown in the Fountain area making it a much more convenient area to live in.
Rental rates in El Paso County Colorado have been steadily climbing since 2012. In many neighborhoods, this has created a real affordability problem. We are always on the lookout for affordable neighborhoods and one area that has emerged is the 80903 zip code.
80903 is home to much of Downtown Colorado Springs. While we don't necessarily associate affordability with the downtown area, the southeastern portion of this zip code does offer more affordability. This encompasses some very popular neighborhoods like Shooks Run and Prospect Lake. Located just west of Memorial Park. South of the Colorado Springs Central Business District and east of Interstate 25, the location is really convenient.
The median rent in the 80903 zip code is $1,195 and the median square footage is 1,060 square feet. This puts the median price per square foot at $0.92
At the other end of affordability is the luxury market. In Colorado Springs that niche is now occupied by the 80921 zip code. This zip code is home The Flying Horse neighborhood. This is a private luxury golf course community located in the Northgate area of Colorado Springs.
The median rental price for this neighborhood is $2,295 and the median square footage is 3,252 square feet. this is a beautiful neighborhood with lots of amenities in the neighborhood and close by. Here is a list of available rentals in the 80921 zip code.
As a Colorado Springs Property Management Company, it is important to stay on top of market trends. We examine these types of big-picture market statistics on a quarterly basis, so, if you are interested in the El Paso County or Colorado Springs residential rental market, make sure to bookmark our page.
