COVID-19 pandemic has affected people’s lives in many different ways. Lockdown around the world led to closure of businesses and economies going into recession. The high rate at which the pandemic is spreading plus measures put in place to contain it has affected how people live and do business. Like many other sectors, the rental estate is under pressure, mainly caused by a drop in rental income.
Factors that are likely to cause a big drop in rental income as a result of the pandemic include unpaid rent, late rent, or forgiven rent. Another factor that determines the level of rental tax levied on landlord. Landlords pay rental taxes in two forms; Cash or accrual basis. Cash basis is where rent is paid as part of income as cash is received. On the other hand, on an accrual basis, rent is paid as it accrues.
To minimize tax losses, property owners will need to make several adjustments to their taxation schedules. These include deducting real estate taxes and mortgage interest on rental properties. In addition, you can also write off several operating expenses paid on the rental property. These include repair and maintenances, utilities, insurance, and outdoor care, among others. In addition, rental property owners can take advantage of the tax-saving bonus where property owners can depreciate the cost of residential properties over 27.5 years. This bonus is also applicable when the properties are increasing in value.
Another factor that will be impacted by the economic downturn caused by the COVID-19 pandemic is future leasing. When the pandemic is over, the real estate industry will adopt measures to stimulate growth. This will include offering incentives on leasing. These incentives include rent holidays. These rent holidays result in a reduction in taxable income as no cash is received.
The real estate is very vulnerable to the economic downturn caused by the pandemic. This includes the loss of revenue, which leaves landlord unable to pay operating expenses as well as capital expenditure. In the past, pandemics have hard an immediate short-term effect on prices of commercial properties. However, transaction activities have remained affected by past pandemics.
