Recently a client sat down with The Rants Group President and CEO Pat Rants to discuss selling a property. At the time, the plan was to put it on the market next year. By the time Rants got done explaining recent changes in the tax laws governing real estate, the decision had changed. “They decided to sell before the end of the year,” says Rants. “Understanding the additional excise tax was just enough to tip them over in that decision.”
Many similar conversations have taken place within The Rants Group this year due to several important legislative shifts. The first has to do with laws governing landlord-tenant relations. The latter is specific to taxes on property being sold, whether it’s commercial or residential. “There have been some pretty significant changes at the state level that have just gone into effect,” Rants notes. While the team changed their own operations accordingly right away, now their big push is to make sure clients understand the changes and what they mean.
Three shifts in landlord-tenant laws are focused on the amount of notice required, which has been expanded in each case. Previously, tenants could be evicted with three days of notice for non-payment of rent. Now that period is 14 days. For rent increases, the window has doubled from 30-day notice to 60-day notice. Finally, any substantial changes such as demolition or rehabilitation that require tenants to move out come with a mandatory 120-day notice. “We’ve been putting information out to our owners ever since the laws were passed, but we’ll keep reminding them,” says Rants.
Another new rule has to do with the rights of tenants to halt legal proceeding by making payments and allows judges leeway to put payment plans in place. “The whole goal is to keep people in their homes and avoid eviction wherever possible,” says Rants. “At The Rants Group, we are really fortunate. We rarely have to evict a tenant out of their home because we can usually work things out before it gets to that point.”
Tax laws impacting property owners have also changed, particularly in terms of excise taxes. The passing of ESSB5998, which will take effect next year, impacts how much tax is applied when a property is sold. Previously at the State level, a flat 1.28 percent tax was in effect for all properties. Now, says Rants, the rate will be on a graduated schedule. “For properties under $500,000, the excise tax actually goes down about 14 percent,” he explains. “Anything from $500,000 to $1.5 million, it stays the same.” However, for properties between $1.5 million and $3 million, the rate increases to 2.75 percent. Those over $3 million are taxed at 3 percent. In addition, local municipalities will continue to tax at a rate up to 0.5%, as most do.
The changes will benefit most homeowners, says Rants, unless they have very expensive homes. As an example, a typical home in Washington State sold for $300,000 would be taxed $3,840 at the State level in 2019 while the tax will be only $3,300 in 2020.
For more valuable properties and many commercial property owners, it’s a different story. “Take the case of a mid-sized office or apartment building that sells for $4.4 million,” says Rants. “The State excise tax this year was around $56,000. The new tax will be about $101,000. For investment real estate, that’s a big increase.”
It’s also another topic the Rants team brings to their clients’ attention. “We’re talking about it, especially when a client is deciding whether to sell now or in the future,” says Rants. “If somebody is thinking about selling, they’re going to save quite a bit of money if they sell this year versus next year.”
With so many changes afoot, the company is seeing an uptick in residential property owners who want to hire a property manager. “We’re hearing a lot of ‘I don’t understand all these changes,’” says Rants. “‘It’s getting kind of complicated. I’m ready to have somebody else do it for me rather than doing it myself.’”
Regardless of whether they decide to go it alone or hire a company like the Rants Group, getting expert advice is essential, says Rants. “Talk to your accountant, talk to your lawyer, and talk with real estate professionals who understand the changes that are going on and can advise you about how to handle your property in the future.”
Learn more by visiting The Rants Group website or calling 360-943-8060.
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