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Tips on Property Management Rental Income, Deductions and Record keeping.

Tips on Property Management Rental Income, Deductions and Record keeping.

  • Posted: Oct 02, 2016
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If you own rental real estate, you should be aware of your tax responsibilities.

All rental income must be reported on your tax return, and in general the associated expenses can be deducted from your rental income.

If you are a cash basis taxpayer, you report rental income on your return for the year you receive it, regardless of when it was earned. As a cash basis taxpayer you generally deduct your rental expenses in the year you pay them. If you use an accrual method, you generally report income when you earn it, rather than when you receive it and you deduct your expenses when you incur them, rather than when you pay them. Most individuals use the cash method of accounting.

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a “TRIM Notice,” the notice reflects what the property taxes are likely to be on the November property tax bill.

a “TRIM Notice,” the notice reflects what the property taxes are likely to be on the November property tax bill.

  • Posted: Oct 02, 2016
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Every August, the Office of the Property Appraiser mails a Notice of Proposed Property Taxes to all property owners. Also known as a “TRIM Notice,” the notice reflects what the property taxes are likely to be on the November property tax bill.

A number of factors can come into play when it comes to determining if the proposed taxes are a fair estimate. For example, failure to recognize the recent slowdown in the real estate market could mean the tax estimate is higher than it should be. To ward against paying more than their fair share of taxes, property owners have the option to petition for an appeal. And condo owners have a unique opportunity where tax appeals are concerned.

Florida law allows condominium association Boards to file a joint petition for property tax appeal to cover all units in the building. In theory, if one unit in the building receives a TRIM Notice with unfairly high property taxes, then chances are the other units did also. Thus, filing a single petition is an efficient way for associations to ensure their owners are not overpaying property taxes. For those unit owners that do not wish to participate, Florida law provides a simple process for opting out of the joint tax appeal.

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Tips for creating an HOA budget or Condo Budget

Tips for creating an HOA budget or Condo Budget

Tips for creating an HOA budget or Condo Budget. Do a budget – I know this seems like a silly tip, but we have seen many associations fail to create a budget before proceeding to the next year. An HOA is just like any other business or organization. If you don’t have a financial plan, you will find yourself a in a mess about halfway through the year when you realize that you don’t have enough funds to make it through the entire year. Take the time to practice financial responsibility for your association. Review budget and Financial History – You always want to review the previous two years financials to fully understand were you currently are vs. where you want your association to be . Many people review previous year’s budgets to prepare future ones. One problem we see is that many people despite reviewing past numbers, fail to make the proper budget corrections when something is way over or under budget from the previous year. Make the proper adjustments to insure an accurate budget. Prioritize projects – We have worked with any HOA and condo associations that get overwhelmed during budget time because they have so many repairs and projects that they want to handle all at once. Any kind of future projects or repairs, need to be prioritized accordingly. This is where you must separate your associations needs vs. wants. Everyone wants the landscaping or condo exteriors to look immaculate, but no one gets excited repairing an unsafe stairwell repairing a leaking sprinkler system. You must eliminate any safety or potential liabilities before exploring any community beatification projects. Utility Increases – We can’t recall a time in which utility costs actually went down from the previous year in our 25 years plus experience. Water, gas, and electricity costs have been increasing steadily over the last decade, especially water costs over the last 2 years. We always research our local city and municipalities to see if they have a price rate schedule available. For example the City of Austin is scheduled to increase water costs 70% over the next five years. Because we are aware of this price hikes, we obviously budget for them accordingly. If no information is available, we suggest increasing the budget on most utilities between 5% to 7% each year….

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BALANCING MONTHLY HOA FINANCIAL REPORTS

BALANCING MONTHLY HOA FINANCIAL REPORTS

BALANCING MONTHLY HOA FINANCIAL REPORTS 1. RECONCILE YOUR BANK ACCOUNTS It’s important to correspond your community association’s bank statements to your accounting ledgers. This includes incoming receivables and outgoing payables. Once you have confirmed that there is a match in your accounting system for each item on the bank’s statement, check for any oddities. If there are any discrepancies, make sure to attach a printout of your reconciliation report to your bank statement.   2. LIST DELINQUENT OWNERS AND OUTSTANDING PAYABLES When you’ve established your income for the month, you need to focus on what’s missing. This will usually come in the form of a delinquency report that will list homeowners who have not paid their dues for the month. You will also need a list of outstanding payables, or checks that have been written against the account but have not yet cleared.   3. PRODUCE A BALANCE SHEET AND PROFIT AND LOSS STATEMENT The balance sheet will list the community’s assets and liabilities. All you have to do is compare your owner balances and receipts against the bottom line of the receivable section on your balance sheet. You will also need to produce a Profit and Loss Statement (Income/Expense Statement). It must correspond with your balance sheet. WHAT SHOULD YOU BE CHECKING FOR? Confirm that the Balance Sheet is in balance. Examine any negative balances on the Balance Sheet and Income Statement. Ensure that the Year-to-Date Current Year Net Income/Loss on the Income Statement corresponds with the Balance Sheet’s Current Year Net Income/Loss. Ensure that the Balance Sheet Reserve Accounts listed under Liabilities & Equity Section corresponds with the Reserve Accounts listed under the Asset Section. Assess any big differences between budgeted and actual figures on the Income Statement. If everything corresponds as expected, you are ready to turn in your monthly HOA financial reports to the Board! HOA FINANCIAL REPORTS Monthly HOA financial reports are required by the Board every accounting cycle, whether it be quarterly or biannually. There is a ton of information out there for board members to help them understand how to state questions to ensure that HOA financial reports are correct. However, some members find it difficult to know which questions to ask in order to make sure everything is correct before giving it to the Board. Snap Collections is here to offer you advice and a checklist to ensure pristine HOA financial reports each month. Find: Great companies on our Members Directory.  …

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Its Budget time

Its Budget time

  • Posted: Feb 21, 2016
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Its Budget Time, and that means it is that time of year for boards of community associations everywhere to prepare next year’s association budgets. A good budget is reflective of good financial planning. In practice, it is anything but an exact science. When examining the community association budget process, there are a few subtle nuisances and a couple of glaring distinctions between those budget related laws set out within Chapter 720 that governs homeowner associations (HOAs) as compared to Chapter 718 that governs condominium associations (CAs). Let’s take a look.   Notice Requirements: • HOA board meeting notices must include a statement that assessments will be considered and, as per statute, “the nature” of the assessments. There is no definitive advance HOA board budget meeting notice requirement set out in Chapter 720, so be sure to check your HOA’s bylaws for any specific requirements. (As an aside, please do not confuse this with the special assessment procedures where it is required for any meeting at which special assessments will be considered that written notice mustbe mailed, delivered, or electronically transmitted to the members and parcel owners and such notice must be posted conspicuously on the property or broadcasted on closed-circuit cable television not less than 14 days before the meeting. • At least 14 days before any CA board meeting at which a proposed annual budget of an association will be considered, the board must hand deliver to each unit owner, or mail to each unit owner at the address last furnished to the association by the unit owner, or electronically transmit to the location furnished by the unit owner for that purpose 1) a notice of such meeting and 2) a copy of the proposed annual budget…

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ASSOCIATION BUDGETING FOR DUMMIES

ASSOCIATION BUDGETING FOR DUMMIES

  • Posted: Dec 12, 2015
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ASSOCIATION BUDGETING FOR DUMMIES Read the article in the December Florida Rising Magazine – http://joom.ag/F5Sp by Steven J. Weil, PhD, EA, LCAM, Royale Management Services, Inc.   A “dummie,” in this case, is a first-time association member and/or someone with little or no association budgeting experience who wants to know more about how and why the budget is created before they vote on it.   Is it really necessary to go through all that work year after year? The first answer is, yes, because it’s the law. Florida law (718.112 (2) (f) 2) requires that annual budgets be prepared and, further, that reserve calculations be made by using a formula that estimates useful life and replacement cost. The real answer is that the budget is a tool used by the association’s board to determine how much owners will be required to pay in maintenance costs for the coming year in order to keep the association financially stable. The budget is a financial plan, a guide; but the process is an art, not a science. That’s why it’s important to leave room for unplanned expenses. A shortfall may result in an assessment, which will not make anyone happy. The only thing owners hate more than a maintenance fee increase is a special assessment that is necessary because the budget does not adequately cover the ongoing operating and maintenance costs. The tricky part of the process is to balance what is required with the often competing interests of those who want the lowest possible increase with those who are willing to pay more for better services, better amenities or other improvements.   There are two parts to every budget: the operating budget and the reserve budget. • The operating budget should include all the necessary regular and recurring expenses that are expected in the coming year, no matter how small, such as repairs, maintenance, payroll, utilities, supplies, insurance and administrative costs.   • The reserves are designed to accumulate funds for major ongoing repair and replacement. Statutes make it mandatory that reserve budgets first include estimated expenditures for roof replacement, building painting and pavement resurfacing at a minimum.   Aside from what the law requires, a good reserve budget also covers other large capital items that will wear out and need to be replaced over the life of the association, such as: elevators, windows, common area air conditioners, docks, generators, et al. Projected estimates take into consideration the cost to replace each item, prorated over the years of its estimated life. A common mistake in estimating this value is the failure to take into account the rise in replacement costs that occurs over time.   Reserve funds cannot be used for purposes other than those intended without a majority owner’s vote of approval in advance.   How do you build a budget that works? The big secret is to start months before your current budget year ends! 1. Step one is the information-gathering process, including a review of long-term contracts, upcoming expected maintenance and repairs, details of possible fee increases and a “wish list.” This time-consuming step includes getting quotes from vendors, examining recurring contracts for things like insurance policies, lawn and landscaping, trash removal, etc. Sometimes closely-scrutinized contracts can be renegotiated to save money. It’s also important to use caution when reducing maintenance and repairs numbers to delay an expense outlay. That could result in increased costs in the long run.   2. Step two is to compare and, using a spreadsheet or special budget software, enter into the appropriate columns the year-to-date income and expenses — projected through year end — with the budget for the current year, to review for increases, and show the percent of difference.   3. Step three: compare projected expenses for the coming year with “other” income (non-assessed) — such as laundry income, application fees, clubhouse rental, dock rental and any other items for which the Association collects fees other than maintenance fees. Using those figures, it is then possible to calculate the maintenance fees needed to fund the budget for the coming year. These required maintenance fees are calculated by subtracting the total projected “other” (non-assessed) income from the total projected expenses. This number is then allocated by the formula shown in the association documents. (The number is often based on the number of units or on square footage.)   According to the Statutes, owners may petition the Board if it adopts a budget where assessments rise more than 15% over those for the prior year. The budget must be in keeping not only with the State Statutes but also with the association’s documents, which may be more stringent. Final approval by the board where the proposed budget is adopted must be done at a properly noticed budget meeting. A notice of this meeting, along with a copy of the proposed budget, must be sent to all owners at least 14 days prior to the meeting. Only association members may vote to waive or reduce the budgeted reserves through full or partial funding. Failing to fund reserves at all puts everyone’s future at risk. If owners can’t afford the monthly cost how are they going to come up with the money when the roof, elevator or other capital component needs replacing? Often this is done by borrowing, making monthly maintenance payments higher because of what is required to pay back a loan, creating a double whammy of current debt repayment for past depreciation and creating an excuse not to meet current obligations. In some buildings this can create a death spiral….

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When are Budgets due?

When are Budgets due?

  • Posted: Dec 10, 2015
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Within 90 days after the end of the fiscal year, or annually on such date provided in the bylaws, the association must have prepared a financial report on the financial activities of the preceding fiscal year. Within 21 days after the financial report is completed, but no later than 120 days after the end of the fiscal year, the board must provide each member with a copy of the financial report or, at a minimum, provide written notice that a copy of the financial report is available upon request, at no charge to the members. The financial report must consist of a complete set of financial statements prepared in accordance with generally accepted accounting principles. The level of financial reporting that must be prepared by the board is based on the total annual revenue (including reserves) of the association, as follows:   1. An association with total annual revenues of $150,000 or more, but less than $300,000, shall prepare compiled financial statements. 2. An association with total annual revenues of at least $300,000, but less than $500,000, shall prepare reviewed financial statements. 3. An association with total revenues of $500,000 or more shall prepare audited financial statements. 4. An association with total annual revenues of less than $150,000 shall prepare a report of cash receipts and expenditures.   Interestingly, if the board desires to raise the level of financial reporting, it may be increased without membership approval by board action alone, unless the governing documents provide otherwise. In addition, if the board is not inclined to approve a heightened level of reporting, but the members want to do so, then upon twenty (20%) percent of the parcel owners petitioning the board to increase the level of financial reporting from that required by Statute for that fiscal year, the board must notice and hold a membership meeting within thirty (30) days of receipt of the petition. To raise the level of financial reporting, a majority of members present at such meeting must cast their vote in favor of doing so.   However, lowering the reporting threshold is a different matter entirely because only the members can make that decision. To accomplish this, a majority of members present at a properly noticed membership meeting must cast their vote in favor of lowering the level of financial reporting. The meeting must take place prior to the end of the fiscal year in question.  …

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SPECIALIZED EXPERTISE MEANS MAXIMUM RECOVERY FOR YOUR ASSOCIATION.

SPECIALIZED EXPERTISE MEANS MAXIMUM RECOVERY FOR YOUR ASSOCIATION.

  • Posted: Dec 10, 2015
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SPECIALIZED EXPERTISE MEANS MAXIMUM RECOVERY FOR YOUR ASSOCIATION. Our Members have the ability to use our Industries Top Company  SNAP COLLECTIONS. Over the past few years, Community Associations have been seriously challenged by the number of delinquencies. Collecting can be expensive, time-consuming – and there’s no guarantee of success. And when worse comes to worst, you sometimes are forced to retain a lawyer who generates a lot of fees, and usually ends up waiting for the bank to foreclose or for a short sale to take place. The bills keep coming in from the lawyer, whether anything is recovered or not.   That’s why you need SNAP Collections. SNAP Collections is focused on getting errant homeowners back on track, and recovering maintenance fees in the most cost-effective manner possible. A complete end-to-end solution by experts. Working with us is easy. • No out-of-pocket cost to the Association throughout the collections process. We work to recover all fees from the Owners can pay: homeowner through the collection process. • By check, e-check, ACH, cash, credit card or debit card • From unit submission, through escalation, to case resolution  • Online, by mail, or walk in to over 40,000 locations – we seek to maximize the recovery and limit write-offs. nationwide. • We steadily escalate efforts and costs to the homeowner,  creating an urgency to resolve the debt quickly. Board and Management: • We work with owners to establish reasonable payment plans. • Online reports and service request available online • We liaise with credit reporting agencies. • Highly-responsive call center for management, • When an owner can’t pay, we try to work with them to boards and owners facilitate a short sale of the unit. It takes experienced specialists to do all that – and • We work with the homeowner to resolve the delinquency,  SNAPoffers the wherewithal to make it happen. without adding unnecessary financial burden. And best of all, there are no out-of-pocket costs to • We have a lien filed to protect the Association’s interest. the Association. So find out more about SNAP • In many cases, SNAP Collections helps avoid expensive litigation. Collections’ specialized financial recovery skills for • We are collection specialists. In fact, it’s all we do – every day. Community Associations. Call 866-736-3069 now or visit SNAPcollections.com National Headquarters Association Financial Services 4400 Biscayne Blvd, Ste. 550 Miami, FL 33137 Tel: 305-677-0022…

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Outgoing board members to return all official records

Outgoing board members to return all official records

  • Posted: Dec 10, 2015
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Outgoing board members to return all official records … to the incoming board.” Now as benign as this may seem it speaks to a greater problem and that issue is: Where are all the association’s records? Why did the legislature have to go out of its way to create a specific law to obligate a proper transition from one board to the other? There must be a problem here. The problem is that community associations have a lot of records and it goes beyond what a board of directors has control of because managers and management companies also have control of essential documents that very often go missing. Let’s take a few examples to demonstrate the problem. A big wind comes and knocks off a couple of roofs in your association, it happens all the time. Well, the first thing that the insurance company wants are the maintenance records roofs going back seven years before they pay for the claim. No records…claim denied and its lawyer time. Another good one relating to community association collections, is that the board has decided to foreclose on Mister Delequaint for non-payment of assessments for the past five years. Mr. Delequaint arrives in court and his lawyer asks the association’s attorney to provide the proof of mailing for the budgets for said five years and they are nowhere to be found. As a matter of fact even the budgets are stone cold lost. The judge can very well possibly rule in favor of Mr. Delequaint (no association foreclosure) and even award him prevailing attorney fees. All these maladies could have been avoided if the association had a document retention policy and followed the protocol. Let’s face the facts and understand that community associations are volatile environments and calling them dynamic is kind. Boards of Directors change, emotions run high, management companies are dismissed frequently, as are attorneys, vendors and whoever else gets an opportunity to work for an association. In the middle of all of this mess records, contracts, ledgers, insurance policies, minutes, proof of mailings, warranties, governing documents, proof of meeting notices, notes and everything else that can be put on paper fall into a deep dark abyss never to be found again. Sometimes by accident and often by design by disgruntled board members, dismissed employees (managers), or untrained office staff who may feel that the round file is for everything that is over a year old. So now that the problem has been identified what is the solution? First as mentioned above, the board of directors must establish a record keeping policy and protocol (vote on it and put it in the minutes). Don’t lose those minutes and approve them at the next meeting. Said policy should identify all the records that an association must keep and for how long. This is easy because it’s all in the statutes (for Florida condos 718.111 and Florida HOAs 720.305) and I doubt that any state does not address this issue. The next thing is: HOW can an association keep these records from disappearing never to be found again? There are many ways to go about this and technology may have the answer. Although it might seem to be expensive it is possible that all documents be kept electronically and not just on paper. Have them scanned and put them away on a remote server. This technology also gives an association a backup just in case that big wind comes and blows away your office or the management office. Once again referring to Florida condo statutes 718.111(12)(b) it is crystal clear that documents can be maintained in digital format. In Florida HOA statutes 720.303(5) the legality of keeping records in digital form is not so clear but it is still a prudent idea. No matter what your board comes up with you should be able to easily get your hands on the minutes of a meeting from five years ago or all the maintenance records for the roofs. Try it and if you cannot put your eyes on them it proves that your community association has a problem that needs to be fixed right away. Find the right professionals on SFPMA.com Found on our members directory.  …

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The rent you collect is subject to income taxes.

The rent you collect is subject to income taxes.

  • Posted: Dec 03, 2015
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The rent you collect is subject to income taxes. As a landlord, you have to declare it to the IRS as part of your gross earnings. But you can also reduce your rental income — and thus lower your tax liability — if you incur certain rental expenses during the fiscal year. Before you file your tax return, understand what the IRS considers rental income and what write-offs the U.S. tax code grants landlords. Rental Income The IRS charges you income tax on your rental income. The agency also specifies that rent is more than just what the tenant pays you on a schedule for occupying your property. It includes advance payments you receive, fees the tenant has to pay you to break the lease, any part of the security deposit that you withhold at the end of the tenancy, and any payments the tenant makes that a landlord would normally be responsible for, such as for appliance repairs. Although the rent you collect increases your taxable income, certain expenses associated with your rental property reduce it.   Interest As a landlord, you get to deduct from your rental income the mortgage interest you pay on the property. In addition, if you use a credit card to pay for repairs, appliances or other required expenses, any interest you pay on those charges is also deductible. Repairs The cost of repairs is deductible from your rental income; however, if you provide the labor, you may not deduct its value from the rent you collect. If you pay someone else for his labor, you can deduct those charges.   Travel If you use your car to conduct business related to your rental unit, you can deduct the standard business mileage rate for the miles you drive from your rental income. You can also deduct 50 percent of the cost of meals while traveling as a landlord, and toll and parking fees. If you have a large rental-property operation that requires more than four cars to maintain it, or if you use leased cars, you cannot use the standard mileage rate. You have to deduct from your rental income the actual expenses for fuel, oil, insurance, new tires, renewing license plates and any other costs you incur to keep the vehicles running.   Depreciation Depreciation is the expected wear and tear your rental property undergoes over the years. The U.S. tax code allows you to reduce your rental income by the unit’s depreciation value. A tax accountant can help you calculate the depreciation of your property. You may first claim depreciation in the first year you rent the property to someone. You can then continue to take the deduction every year until the total deductions equal the amount you paid for the rental.   Other Tax Write-offs If you use a property manager to oversee your rental property, you may deduct from your rental income all fees you pay for the service. The cost of consulting with a tax accountant and getting the tax forms related to your rental prepared and filed also reduce your income, as can your costs for telephone calls and advertising. In case of an audit, keep records, such as receipts and bank statements, to prove your expenses.  …

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