Government to Landlords: Drop Dead!
During this COVID-19 pandemic, landlords have two big possible problems:
- Tenants who can’t pay the rent.
- Tax losses that they can’t deduct.
The Federal Moratorium on Residential Evictions
- The CDC order is effective September 4, 2020, through December 31, 2020.
- The CDC order bars residential landlords from evicting tenants for non-payment of rent if a tenant’s estimated 2020 income is no more than $99,000 (single) or $198,000 (married, filing jointly).
- The CDC order applies to all types of residential rentals: houses, duplexes, apartment buildings, mobile homes, and mobile home spaces.
- The CDC order does not apply to commercial properties, including motels and hotels. Nor does it apply to guesthouses rented to temporary guests or seasonal tenants
- To prevent an eviction, a tenant need only give the landlord a declaration signed under penalty of perjury providing that the tenant
- Has used his or her best efforts to obtain all available government assistance for rent or housing;
- Falls within the income restrictions ($99,000 or $198,000 in income for 2020)
- Is unable to pay the full rent due to substantial loss of household income, loss of work or wages, or extraordinary out-of-pocket medical expenses;
- Is using his or her best efforts to make partial payments that are as close to the full rental payments as the tenant’s circumstances permit; and
- Would likely become homeless or forced to move into and live in close quarters or a shared living space.
Tenants need not provide their landlord with any proof that the statements in the declaration are true. The CDC has created a form declaration for tenants to use.
Individual landlords who violate the CDC order are subject to a fine of up to $100,000 and up to one year in jail, if the violation does not result in a death. The fine goes up to $250,000 if the violation results in a death.
The fines are doubled for organizations such as LLCs, corporations, and REITs.
State and Local Eviction Moratoriums
Many states and some cities and counties have enacted their own eviction moratoriums. These apply instead of the federal moratorium if they provide equivalent or greater protection from evictions.
Some Evictions Are Still Possible
Despite the moratorium, you may still be able to evict a problem tenant for reasons other than non-payment of rent. The CDC order allows evictions if a tenant
- engages in criminal activity while on the premises;
- threatens the health or safety of other tenants;
- is damaging the property or poses an immediate risk of damaging the property;
- is violating any applicable building code, health ordinance, or similar health and safety regulation; or
- is violating any other contractual obligation other than timely payment of rent.
You May Challenge a Tenant’s CDC Declaration in Court
If a tenant gives you a signed CDC declaration, but you believe he or she does not meet the requirements for protection under the CDC order, you can file an eviction lawsuit for non-payment of rent and allege that the tenant did not truthfully sign the declaration.
Such tenants would have to prove to the court that the CDC order requirements are satisfied —for example, present to the court copies of applications to agencies for rent assistance, a copy of their 2019 tax return, and/or proof they were laid off from their job.
Tenants Still Owe Their Rent
The federal, state, and local moratoriums only prevent tenants from being evicted for non-payment of rent. They do not excuse or forgive tenants from paying their rent.
Tenants’ unpaid rent continues to accrue during the moratorium. You may also charge tenants all applicable late fees, penalties, and interest on their unpaid rent.
You May Be Able to Sue Your Tenants for Unpaid Rent
You can obtain a money judgment against the tenant and garnish his or her wages (if any) to collect the debt, or even proceed against the tenant’s bank accounts.
You may be able to file an eviction lawsuit for non-payment for rent right now.
Mortgage Relief for Struggling Landlords
If you own a rental property with five or more units and you have a federally backed loan, you may obtain up to six months’ forbearance on your loan payments. This includes multi-family loans purchased or securitized by the Federal Home Loan Mortgage Corporation (Freddie Mac) or the Federal National Mortgage Association (Fannie Mae).
During the period of forbearance when you are not making loan payments, you may not evict your tenants, charge late fees, or begin eviction lawsuits.
EIDL Loans for Landlords
If you need cash right now, you may be able to obtain a low-interest Economic Injury Disaster Loan (EIDL) from the Small Business Administration (SBA) to help tide you over until all the federal, state, and local eviction moratoriums expire.
EIDLs are 30-year loans with a 3.75 percent interest rate and no prepayment penalty. Landlords may borrow an amount equal to six months of rental payments, up to $150,000. No collateral is required for loans under $25,000.
Unpaid Rent Is Not Tax Deductible
It is a debt owed to you by your tenant. You get no tax deduction for the unpaid rent even if tenants never pay the rent they owe.
Deducting Rental Property Tax Losses
You have a rental loss if the total annual expenses you incur for your rentals (mortgage interest, taxes, utilities, insurance, maintenance, depreciation, and other expenses) exceed your total rental income (which does not include unpaid rent).
- Rental losses are always classified as passive losses. Subject to two important exceptions, the general rules are as follows:
- Passive losses are deductible only from passive income—income from rental activities and from businesses in which you do not materially participate.
- Passive losses are not deductible either (a) from ordinary income such as salary and self-employment earnings, or (b) from investment income such as dividends or interest.
Non-deductible Rental Losses Become Suspended Passive Losses
Rental losses become suspended passive losses. They are carried forward indefinitely and deducted from passive income each year until they are used up. You may also deduct your suspended passive losses if you sell or otherwise dispose of substantially all your interest in your rental property in a taxable transaction.