Posts Tagged Landlords

U.S. Senate Repeals A Second New 1099 Reporting Law That Would Have Greatly Affected Landlords

Feb 21

Posted by Tristan R. Pettit, Esq. in 1099's, Legislation | No Comments

About a week ago I blogged about a new federal law that will require landlords to issue 1099′s to any individual or business that provides the landlord with more than $600 in services in any 12 month period.  While this new law isn’t going away anytime soon, another new federal 1099 reporting law has fortunately been repealed.

Included in the new health care reform law known as the Patient Protection and Affordable Care Act (more commonly referred to as “Obamacare”), was a provision that would have required landlords (and other small businesses) to report to the IRS any purchases of goods over $600 per year from any other business or individual. 

Under this law, which would have commenced in 2012, a landlord would have been required to issue 1099′s to Home Depot and Menard’s if the landlord purchased more than $600 in goods from either of these stores.  A landlord would have also been required to issue 1099′s to the municipal water department and WE Energies — since water and electricity are considered to be “goods.”  The additional paperwork required of landlords under this new law would have cleared several rain forests.

Fortunately, the U.S. Senate — with broad bipartisan support – approved an amendment on February 2nd, 2011 to repeal the expanded 1099 information reporting requirements contained in the health care reform law.

So while a landlord will still be required to 1099 business and individuals that supply more than $600 in services within a 12 month period, landlords will no longer be required to 1099 a business or individual that supplied more than $600 in goods in that same 12 month period.

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New 1099 Law Will Greatly Affect Landlords In 2011

Feb 11

Posted by Tristan R. Pettit, Esq. in 1099's, Employee vs. Independent Contractor, Legislation, Taxes | 1 Comment

A new federal will greatly affect how landlords do business in 2011.

In September 2010, a small provision affecting landlord was tucked into the Small Business Jobs Act of 2010, which has now become a subject of concern to many of us.  Not only will this new law create a lot of additional paperwork for landlords, but it may open up Pandora’s Box should you be audited.

The new law requires all people who own rental property to issue a form 1099 to any service provider that is paid more than $600 per year starting as of January 1, 2011.  The 1099 would have to be issued to the service provider and to the IRS.

Prior to this new law being passed, only landlords whose real estate activities were considered to be a “trade or business” had to issue 1099′s to service providers.  Now, even if you own only one duplex or a single-family rental property, and continue to maintain a full-time job doing something other than landlording, you will need to comply with this new law.

Landlords will now be required to obtain certain information from their vendors/contractor, such as their name, address, and social security number or tax identification number.  You will also need to keep track of the amount of money that you pay the vendor/contractor over the course of the year.  If you pay them more than $600 within the tax year then you must reflect that income on a 1099.

Under this law, landlords will need to issue a 1099 to most all contractors/vendors regardless of whether they are a corporate entity or an individual.  This will include handymen, plumbers, carpet cleaners, electricians, painters, gardeners, landscapers, accountants, lawyers etc. etc.

If you give one of your current tenants a discount on rent for looking after your rental property, shoveling snow in the winter, and mowing the lawn in the summer, and that discount adds up to $600 or more over the course of the year, you will need to 1099 them as well.  Basically you will need to issue a 1099 to all service providers who you pay $600 or more within a year and who are not employed by you and already receiving a W2.

The proposed penalty will be $100 per instance and possibly higher if the Feds believe that you intentionally failed to comply with the law.  You could also lose the ability to deduct the payments to the service provider from your taxes, if you do not have a matching 1099.

As my friend and fellow AASEW board member Tim Ballering, so accurately pointed out, this new law has much deeper consequences than a $100 fine for failing to issue a 1099 to your handyman.

If you submit a deduction on your taxes without a matching 1099 you have just tipped off the IRS or your state taxing authority, and increased the possibility of being audited.  Additionally, once you file a 1099 for each service provider that did work on your rental properties — just think how many 1099 this could potentially be — the Feds may very well look at all of that new paperwork and wonder if some of those so called independent contractors shouldn’t more properly be classified as a statutory employees instead.

Essentially, all of the 1099′s that you will be required to file may now alert the IRS and the Wisconsin Department of Revenue to investigate whether or not these contractors should be reclassified as “employees.”  If such a reclassification would happen, a landlord could be placed in a very painful and expensive predicament.  Fines can be as large as $5,000 per employee. You would also be required to pay both the employer and employee’s taxes (that should have been withheld had the contractor been properly classified as an employee), penalties, and interest.  The IRS has indicated that they expect to collect an additional $7 billion per year as a result of this provision.

Not only can improperly classifying an employee as a contractor involve the IRS or Wisconsin Department of Revenue, but it could also provoke other government entities to investigate the independent contractor vs. employee issue – think unemployment compensation and worker’s compensation insurance.

While the tests for whether or not someone is an employee for purposes of UC, WC and tax purposes are slightly different, there are commonalities.  If you are paying the service provider by the hour, if you provide them with supplies, if you provide them with tools, if you control how and when they do the work – there is a strong likelihood that they are statutory employees and you should have been doing withholding, and paying both unemployment insurance and workers compensation insurance.

So not only will this new law result in a lot of additional paperwork for landlords, it could put many of you in a position to lose everything that you have worked so hard to build.  I would strongly recommend that all landlords take the time and effort to determine if they are improperly classifying an employee as an independent contractor.  Any money that you think you are saving up front by avoiding the proper withholdings will be greatly overshadowed by the back taxes, fines, interest, and potential loss of your business, if the government later determines that your classification was wrong.

2/22/11 – UPDATE:  On February 17, 2011, the House Ways and Means Committee, by a vote of 21-15, approved H.R. 705, the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayment Act of 2011.  Among other things, H.R.705 seeks to repeal IRS Code section 6041(h), which was added by the Small Business Jobs Act of 2010, and which treats recipients of rental income from real estate (i.e. landlords) as engaged in the trade or business of renting property for information reporting purposes starting in 2011.

So this new 1099 law may still be repealed.  Stay tuned . . .

 

3/8/11 — UPDATE

On March 3, 2011, the House approved a repeal of the expanded 1099 information reporting requirements by a vote of 314-112.  The bill, called the Small Business Paperwork Mandate Elimination Acot of 2011 (H.R. 4) would repeal the 1099 provisions of both the Affordable Care Act (“Obamacare”) and the Small Business Job Act which required business — including rental property owners — to file a 1099 with the IRS reporting any purchases of services or goods over $600 per year.

The rub is that the new bill attempts to pay for the alleged costs of the repeal by requiring people who had received tax credits to pay for health insurance under the health care reform bill to repay the subsidies if they end up earning too much during the year to qualify.  Seventy-six Democrats in the House opposed H.R. 4 because of this offset provision.

Apparently everyone — Republicans and Democrats alike —  favor the repeal of the new 1099 laws, now it is just a matter of finding a way to pay for the repeal that everyone can live with.

 

4/7/11 — UPDATE

The U.S. Senate has passed H.R. 4 which repeals the new 1099 reporting laws for businesses and rental property owners.  The vote was 87-12.  Since the House had already passed this bill – and no modifications were made by the Senate – the bill will now go to the President for his signature.  While the President has indicated that he did not care for the “pay for” (offset) provisions that were included in H.R. 4, he has supported the repeal of the 1099 reporting requirements, so it is believed that he will sign the bill into law.

4/18/11 – UPDATE

President Obama signed H.R. 4 into law today.  So all new 1099 reporting requirements for landlords are gone.  The law now goes back to what it was prior to the 2010 legislation (Small Business Jobs Act and Obamacare).  For more detail refer to my 4/18 post on the topic.

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Don’t Miss DR. RENT at AASEW’s Next Meeting on Monday, January 17th!!

Jan 14

Posted by Tristan R. Pettit, Esq. in AASEW, Seminars | 4 Comments

On Monday, January 17, 2011 at 7 p.m., John “Dr. Rent” Fischer will be the featured speaker at the AASEW’s February membership meeting.  John will be presenting his most requested seminar entitled “Top Ten Mistakes That Landlords Make.”  The meeting will be held at the Best Western Midway Hotel which is located at 1005 S. Moorland Road in Brookfield.

Besides, being a blogging buddy of mine — John’s blog is entitled the Dr. Rent Chronicles —  John is a Wausau area landlord and landlord-tenant law guru, and Past-President og the Wisconsin Apartment Association.  John is a very dynamic speaker – you will not want to miss his presentation.  His most recent post is a great overview of Rent Certificates.

Here is some more info about John:

John H. Fischer is a Wausau area landlord.  He started working part-time with Emmerich & Associates, Inc. in 1993 and since then has worked in nearly every aspect of the real investment field.  Although he still works with Emmerich & Associates, managing their non-residential portfolio, in 2006 he purchased the bulk of their residential inventory and founded HelpRent, Co.

Observing a number of old and new landlords going to court and having a hard time because of their lack of understanding of Wisconsin’s complicated landlord-tenant laws and procedures, John has been making an effort to educate landlords on the proper way to do things for over a decade.  He has taught classes on everything from accounting, to proper management procedures, to landlord-tenant law.  He has provided training sessions to a number of local apartment associations as well as the Wisconsin Apartment Association.  He offers a series of courses in real estate through the University of Wisconsin Continuing Education program.

John is the past president of the Wausau Area Apartment Association and was the 2010 president of the Wisconsin Apartment Associations.  He has degrees in International Business Management as well as Human Resources Management from the UW-Madison School of Business.  He is also a graduate of Bryce Harlow Institute for Business and Government Affairs at Georgetown University.

Also known as Dr. Rent, John answers landlord and tenant questions on his weekly radio talk show which can be heard on Thursdays from 5 p.m. to 6 p.m. on WNRB-LP 93.3 FM, a local Wausau readio station.  He also participates in a number of online forums.  He is a feature contributor to WausauBlog and is a featured writed at Citizen Wausau.

I hope to see everyone at the meeting!

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Top 10 New Year’s Resolutions for Wisconsin Landlords

Dec 30

Posted by Tristan R. Pettit, Esq. in Miscellaneous | 1 Comment

About 75% of my law practice involves representing landlords and management companies on issues that they confront on a daily basis (the other 25% involves business and general civil litigation).  Devoting such a large segment of my law practice to representing landlords, I have had the opportunity to spend a lot of time with many of you, talk to you, learn from you, and sometimes even notice a few things that if they had been done differently, could’ve saved you some money and headaches. 

Knowledge is power and I firmly believe that with more knowledge, landlords can make changes that will make their landlording or property management business prosper.  I thought that some of my observations this past year would make for a pretty decent New Year’s resolution list for Wisconsin landlords.

ASIDE:  When applicable, I have linked each specific resolution to one of my blog posts that addresses that specific subject or provided a link to the law on that topic.  It should be noted that sometimes the link is to a longer post that addresses more than one issue, so the direct reference may be a bit farther down in the post — i.e. Resolution #3′s link – the reference is way at the bottom of the post). 

Tristan’s Top Ten New Year’s Resolutions for Wisconsin Landlords

1.   I will review my current rental agreement and other rental documents to make sure that they do not include any of the seven prohibited provisions as set forth in ATCP 134.08.  If you are using a rental agreement from ezLandlordForms.com, Office Depot, or OfficeMax – get rid of them, before a court throws them out for you.

2.   If my rental property is owned by an LLC (even if I am the sole member of the LLC) and I need to file an eviction action (in Milwaukee County), I will ensure that I bring proof that I am a full-time employee of the LLC or I will hire an attorney to represent the LLC in court.

 3.   If my tenant and I make any modifications to the rental agreement, or if my tenant and I decide to modify an agreement that we signed in eviction court, I will make sure that those modifications are in writing and signed.

4.   If I have an automatic renewal provision in my rental agreement, I will not attempt to enforce it unless I have sent my tenant a separate written reminder, at least 15 days but no more than 30 days — in addition to any other notice period required — prior to the beginning of the renewal period as required in ATCP 134. 09(3) and sec. 704.15, Wis. Stats.   For example, if my tenant signed a lease for a specific term (as opposed to a month to month or some other periodic tenancy) I will remind myself over and over and over, that I cannot hold a tenant responsible for the next month’s rent after the lease term ended, just becasue the tenant failed to give me written notice that they would be vacting at the end of the lease term.  To do so would be a violation of the automatic renewal law.

 5.   If I am a relatively new landlord– or if I haven’t attended any landlord-tenant law refresher courses recently — I will sign up and attend the AASEW’s Landlord Boot Camp, so that I will be better able to avoid costly mistakes while managing my rental properties.

 6.   If I do not already have a set of written screening criteria, which sets forth the minimum requirements that a rental applicant must meet in order to rent one of my rental units, I will spend the time and energy to draft such criteria and begin using it.

 7.   I will always remember to either: (a) return a tenant’s security deposit to them within 21 days of the date that they vacated, or (b) send a clear and understandable accounting of how the tenant’s security deposit was applied within 21 days of the tenant vacating.  I will not attempt to make deductions from my tenant’s security deposit for things that I am not legally entitled to deduct from it.  Simply put, I will NOT play games with my tenant’s security deposit.

8.   I promise that despite whatever sad story a prospective renter provides me, I will still take the time to conduct a thorough background check, including running the applicant’s name on CCAP, vetting their current landlord, prior landlord and employer, obtaining a credit report, and require that the applicant supply me with the necessary documentation to substantiate that they can afford to consistently pay rent.

 9.   If I learn of any legislation that negatively affects me as a landlord, I promise to write and/or call my congressman, senator etc. etc., and clearly explain why I think they should vote against the proposed legislation.  Landlords are one of the most regulated preofessions out there – I need to make my voice heard to try and mitigate this.

10.  I will treat the management of my rental properties as a business.   The government and court system treat the management of rental property as a business, so you need to do the same!

If you have any resolutions that you would like to add to this list please be sure to post a comment and include your resolution — I’m sure there are more that I forgot to mention.

Here’s to a healthy and prosperous 2011.

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New Report States What Landlords Already Know – That Milwaukee’s Regulations Hurt Businesses

Nov 5

Posted by Tristan R. Pettit, Esq. in City of Milwaukee, Investing In Rental Property, Miscellaneous | No Comments

This past weekend I read a very interesting report which was drafted by the Institute for Justice as part of its City Study Series entitled Unhappy Days for Milwaukee Entrepeneurs: Brew City Regulations Make It Hard For Businesses To Achieve the High Life.

The report is 40 pages long (excluding footnotes) but I encourage everyone to read it.  The report touches on the following issues:

- How the city rigidly restricts the ability of entrepeneurs to operate businesses from their homes

- How the city abuses the custom of aldermanic privilege in order to deny businesses licenses and permits thus preventing businesses from opening and operating

-  How the city imposes restrictions on food-related businesses that make it next to impossible to get a business started

- How the city overburdens successful businesses with so many rules and fees that many businesspersons are contemplating moving out of the city

- How the city arbitrarily enforces building codes and historic preservation provisions making it too costly to rehabilitate old buildings

- How the city severely limits a businesses ability to place signage on its storefront

- How the city requires an expensive license in order to go out of business.

While landlording is not specifically discussed in the report several of the topics addressed clearly affect landlords.  One that comes to mind is the arbitrary enforcement of certain building code provisions – what landlord has not dealt with that?  Additionally I believe many landlords would agree that the city overburdens them with so many rules and fees that many are contemplating leaving the city.  I know of several landlords that have sold off all of their Milwaukee rental properties and now only own and manage rental units outside of the city.  I know of even more landlords that would love to do that very same thing if only they wouldn’t lose their shirt (and their pants, belt, socks and underwear) by selling their rentals in this poor climate.

Landlording is one of the most regulated areas that I am aware of, if you don’t believe me just take a look at this memo that was published by the AASEW board of directors on the topic.

The city’s new Residential Rental Inspection ordinance is another example of the city making it difficult for landlords to survive.

The Journal Sentinel’s Patrick McIlheran wrote about how difficult the environment in Milwaukee is for landlords not too long ago, which I blogged about.

According to the Institute for Justice’s report, landlords are not the only businesses that Milwaukee is making life, success, and survival, difficult for.

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New Rental Agreement for Self-Service Storage Units Now Available at Wisconsin Legal Blank

Oct 11

Posted by Tristan R. Pettit, Esq. in Rental Agreements, Rental Documents, Self-Service Storage Units | No Comments

I have recently drafted a Self-Service Storage Unit Rental Agreement that is now available and being sold at Wisconsin Legal Blank Co., Inc.  Additionally I have drafted two seperate default notices that should be sent to the tenant who has breached the rental agreement for the self-service storage unit.  The two default notices contain differernt language as required per Wisconsin’s new law regarding self-service storage facilities and units.

Self-service storage facilities in Wisconsin are governed by sec. 704.90, Wis. Stats., which is the chapter that deals with landlord tenant relationships.  While a self-service storage unit involves a landlord tenant relationship, the laws governing these facilities and units is very different than the laws governing an apartment unit or other rental property.

Sec. 704.90 is specific to self-service storage facilities and units.  It does not apply to storage units that are incidental to the rental of a apartment unit.  For example, sec. 704.90 (and the new forms that I have drafted) would not be used if a tenant is renting an apartment unit that includes the use of a storage unit in the basement.

The laws regarding self-service storage units were significantly changed by 2009 Wisconsin Act 380 (2009 Assembly Bill 707) which is the reason that I decided to draft the new rental agreement and notice of default forms.

Some of the changes in the new law include the following:

1.     The new law makes current statutory provisions governing self-service storage facilities also apply to self-service storage units.  A self-service storage units include a box, shipping container, or trailer that is leased by a tenent primarily for use as a storage space whether the unit is located at a facility owned or operated by the owner or at a locations designated by the tenant.  This change in the law was made to address the new PODS type units that are being leased to people who store the units off-site from the self-service storage facility.

2.   The new law requires that if a self-service storage facility rental agreement includes a provision that limits the value of the property stored, that the clause must be printed in bold or underlined type of the same size as the rest of the agreement.  The limit listed in any agreement is presumed to be the maximum value of the property stored in the unit.

3.     After the termination of the rental agreement, an owenr may deny the tenant access to the personal property remaining in the leased space until the tenant redeems the property by paying the owner any rent and other charges that are due. 

4.   The owner may sell the property after providing two notices to the tenant, and if the tenant does not redeem the property within fourteen days after the date of the second notice. 

5.   The new law provides that the second notice of default may be sent via certified mail or by first class mail with a certificate of mailing.

6.   If the tenant does not redeem the property, then an owner who wishes to sell the property, must publish an advertisement of the sale once a week for two consecutive weeks in a newspaper of general circulation where the self-service storage facility is located.

6.     The new law eliminates the old requirement that an owner’s advertisement of the sale of the abandoned property include the nubler of the space where the property was located.

7.     The old law required that any sale of the abandoned property be conducted in a “commercially reasonable manner.”  The new law states that the sale must meet one of the following requirements: (a) the property is offerred as a single parcel or multiple parcels at a public sale attended by three or more bidders, (b) the property has been offerred to at least three persons who deal with the type of personal property offerred for sale and is sold in a provate transaction, or (c) the property is sold in another manner that is commercially reasonable.

8.   The new law allows the owner or operator of the self-service storage facility to do the following with the property if they do not want to sell the property, if the value of the property is less than $100 and proper notice is provided: (a) donate it to a non-profit organization, (b) dispose of it in a solid waste facility, (c) recycle it, (d) remove it in another reasonable manner.

9.   The old law allowed “any person” to bring a civil lawsuit for a violation of the self-service storage facility laws — this resulted in a very well known 2008 lawsuit entitled Cook v. Public Storage Inc., in which the owner/operator was sued by the parents of a tenant, who happened to also store some of their belongings in the tenant’s self-service storage units.  The new law allows only the “lessee” (tenant) to bring such a lawsuit.

For those of you owning and operating self-service storage facilties and units I hope the new rental agrrement, Notice of Default #1, and Notice of Default #2, prove helpful in assisting that you follow the applicable laws.

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Business Journal Article Addresses Fallout of the City’s RRI Ordinance To Date

Oct 7

Posted by Tristan R. Pettit, Esq. in City of Milwaukee, DNS, Residential Rental Inspection (RRI) Program / Mandatory Rental Inspections / Landlord Licensing | 1 Comment

I was recently interviewed by Business Journal reporter Sean Ryan regarding the fallout of the dismissal of three landlords’ lawsuit against the City of Milwaukee regarding the unconstitutionality of its Residential Rental Inspection (RRI) program.  My most recent post on the subject can be read here.

On October 1, 2010, The Business Journal published  its article entitled “Judge Upholds Milwaukee Home Inspection Program.  Reporter Sean Ryan spoke with the primary plaintiff, Joseph Peters, Alderman Nik Kovac (sponsor of the ordinance), Todd Weiler (of the Department of Neighborhood Services) and myself for the article.

I found Mr. Weiler’s comments to be very noteworthy.  He was quoted as saying that to date DNS has inspected over 800 properties in the two target areas (Lindsey Heights on the north side and the UWM-area on the east) and that during those inspections 8,550 violations were found.  Apparently 1/2 of the the properties inspected – or 400 – had no violations at all.

I wonder if all 8,550 of the violations that were found — and which the landlords were cited for – pertained to life-safety issues?  If you will recall, life safety issues were the ”alleged” original impetus behind the ordinance being introduced. 

In speaking with several landlords that I know who own proeprties in the target areas, I was informed that the violations that they were cited for involved very minor issues — such as peeling paint on the outside of a building, torn screens, and failure to paint some wood that had been properly sealed but not painted.  The lead plaintiff, Jospeh Peters, was quoted in the article as saying that the Orders To Correct that he received on his 10 buildings also involved very minor repairs – such as torn screens.

Just how many of the 8,550 violations dealt with life safety issues?  How many illegal attic bedrooms were found?  How many poorly maintained second story porches that could collapse at any minute were identified?  Don’t forget the overloading of circuits by the improper use of extension cords – how many of those were found?

If you will recall the testimony that was offerred by both Alderman Nik Kovac, who sponsored the ordinance, and Art Dahlberg, Commissioner of the Department of Neighborhood Services, at the public hearing before the ZND Committee way back when, the focus of this program was to make these affected properties safe and prevent unnecessary deaths. 

I’m not sure how many lives have been saved as a result of the RRI ordinance to date, but at least we wont have to worry about any of those deadly torn screens, inherently dangerous unpainted wood, and the lethal peeling paint on the outside of a duplex. 

Not sure about you but I feel a lot safer already.

This ordinance is now being shown for what it really is — not an attempt to save lives and improve properties — but rather an way for the city to get inside one’s private property without the need to obtain a warrant or even receive a tenant complaint, a way to make additional money (through the required filing fees and reinspection fees), and a way to further harass landlords that are having a difficult enough time making ends meet. 

Sometimes I just wish that all of the landlords in the city of Milwaukee had the ability to just walk away from their rental properties.  I wonder if the city would then realize, once all the landlords are gone and there is no one to own or operate rental housing, that we provide a much needed service and that most of us do a good job of providing that service.  Would they try to work with us then . . . . ?

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