Multifamily Tax Advantage to Extend?

News for Multifamily Tax Advantage

One light in the news was the Administration Announcing a return of bonus depreciation

While 100% bonus depreciation was a significant advantage for multifamily investors in the past, it's important to understand that it is currently being phased out. In 2025, the bonus depreciation rate is 40%. However, it can still be a valuable tool for investors. Here's how it works and why it's beneficial:

How Bonus Depreciation Works

• Accelerated Deduction: Bonus depreciation allows investors to deduct a significant portion of the cost of eligible assets in the year they are placed in service, rather than depreciating them over their useful life.  
• Eligible Assets: In the context of multifamily properties, this typically includes personal property like appliances, furniture, and certain land improvements. It does not apply to the building structure itself.  
• Reduced Taxable Income: By taking this large upfront deduction, investors can significantly reduce their taxable income in the current year.  

Benefits for Multifamily Investors

• Increased Cash Flow: The reduced tax burden can lead to increased cash flow, which can be reinvested in the property or used for other purposes.  
• Improved Return on Investment: By reducing tax liabilities, investors can potentially increase their overall return on investment.  
• Tax Deferral: Bonus depreciation can defer taxes to a later date, allowing investors to use the money now and potentially pay taxes when they are in a lower tax bracket or when the property is sold.

Important Considerations

• Phase-out: As mentioned, the 100% bonus depreciation rate has been phased out. In 2025, it's at 40%, and it will continue to decrease until it reaches 0% in 2027.  
• Cost Segregation: To maximize the benefits of bonus depreciation, investors often use cost segregation studies. These studies identify and classify the various components of a property, allowing investors to take advantage of shorter depreciation periods for eligible assets.  
• Recapture: When a property is sold, there may be a "recapture" of some of the depreciation deductions, which could result in taxes being owed.  

In Conclusion

While 100% bonus depreciation is no longer available, the current 40% rate can still provide significant tax benefits for multifamily investors. By understanding how it works and utilizing strategies like cost segregation, investors can reduce their tax burden, increase cash flow, and potentially improve their overall return on investment.

Maryland Investor Multifamily Tenant Statistics 2024

2024 Maryland landlord and developer problems

The combined impact of the pandemic and economic challenges has led to significant tenant delinquency rates in Maryland's affordable housing sector, posing challenges for both tenants and property owners. Old pandemic and newer economic challenges have a significant impact on affordable multifamily housing in Maryland. Tenant delinquencies are a growing concern for property owners and managers, leading to financial strain. In 2024 a twelve percent increase in tenant accounts receivable compared over the past two years indicates a trend of tenants not paying rents.

Factors Contributing to Delinquencies:

Job Loss and Wage Reductions: Many residents in affordable housing rely on low-wage jobs that were disproportionately affected by pandemic-related closures and layoffs.

Increased Living Costs: Rising costs of essential goods and services, such as groceries and utilities, have further strained household budgets.

Rental Assistance Challenges: While rental assistance programs have provided some relief, the process of receiving aid was complex and time-consuming. Many programs ended.

The Impact on Property Owners and Managers:

Financial Strain: Delinquencies directly impact property owners' cash flow, making it difficult to maintain properties and cover operating expenses.

Increased Eviction Filings: In some cases, property owners may be forced to initiate eviction proceedings, which can be a lengthy and costly process.

Property Management Challenges: Managing tenant delinquencies requires additional resources and expertise, potentially increasing administrative burdens.

Tenant Outreach and Support Services: Offering financial counseling, job training, and other support services can help tenants develop long-term financial stability.

Flexible Payment Plans: Working with tenants to create flexible payment plans can help them manage their debt and avoid eviction.

It's important for property owners and managers to stay informed about local resources and support programs available to assist tenants facing financial hardship. By taking proactive steps to address tenant delinquencies, property owners can mitigate financial risks and maintain the stability of their affordable housing communities.

In October 2024, Maryland lost 9,000 nonfarm jobs, which led to an unemployment rate of 3.0%. This was an increase from the previous month, when the unemployment rate was 2.9%. Maryland's unemployment rate is tied for 12th lowest in the country.

49th in Job Growth: Maryland ranks near the bottom nationally in job growth rate (0.6%) and 34th in total jobs added (16,700) over the past year.

Three-Year Growth Lag: The state's three-year compound growth rate ranks 48th in the country, signaling persistent issues.

 

Maryland has a labor shortage.

The skills that employers need don't match the skills that job seekers have. The need for skilled workers is increasing, especially in areas like data science, cybersecurity, and artificial intelligence. 

How to develop living and working environments that are appealing to talent? Provide quiet, safe, clean, units with wi-fi.

Maintain current applicant lists, use digital tools to update monthly, and post vacancies on websites.

What historically worked that we moved away from?

Have maintenance personnel reside on site.

Have a phone line that transfers to someone’s cell phone all the time.

Communicate with tenants in the mode they prefer: face to face, cell, text, web-based, USPS may be too slow…

 

By taking proactive steps to address tenant delinquencies, property owners can mitigate financial risks and maintain the stability of their affordable housing communities.

This data provides a snapshot of landlord-tenant cases in Maryland's district courts in 2024. Here's a breakdown of the key figures:

Total Cases: 33,835

Defendant Appearances: 2,583

Dismissals: 10,440

Tenant Holding Over: 450

Breach of Lease: 217

Levy in Distress: 2

Wrongful Detainer: 308

Grantor in Possession: 13

Warrant of Restitution: 11,879

Eviction: 1,882

 

Flood Damage

Tips for Homeowners During a Flood

FLOOD Emergency Tips

Safety First

• Monitor news reports for emergency updates.
• Be a good neighbor and check on those who may need extra help, especially the elderly, people with medical conditions, or those living alone.
• Never enter moving floodwater. Floodwater can be contaminated and pose electrocution risks from downed power lines.
• Turn around, don't drown! Avoid driving through flooded roads.
• Stay clear of damaged buildings and unsafe areas until authorities give the all-clean.
• If the power goes out, report outages and turn off appliances you can reach safely.

After the Flood

• Look before you step! Use a stick to check for hidden hazards like broken glass or nails. Floodwaters can also leave floors slippery.
• Only drink boiled water until authorities confirm the water supply is safe.
• Discard any food, including canned goods, that has come into contact with floodwater. Avoid flooded gardens for food consumption.
• Charge your phone and find ways to stay connected if possible. Have one point contact who posts your progress and needs on Facebook or the social media that you have friends. Ask for things you need that are specific.

Inspecting and Cleaning Up

• Safety first! Never touch electrical equipment while wet. Let it dry completely and have a licensed electrician inspect it before use.
• Move salvageable belongings upstairs or to higher ground.
• Document everything! Take photos of the damage for insurance purposes.
• Contact your insurance company.
• Avoid entering moving floodwater. It may be contaminated.

Cleaning and Sanitation

• Wear protective gear: gloves, goggles, a mask, and rubber boots when cleaning.
• Wash and disinfect anything that got wet.
• Clean flooded floors and walls with a bleach solution (¼ cup bleach per gallon of water).
• For mold removal, use a vinegar solution (spray with 100% vinegar, let dry) followed by a baking soda paste on porous surfaces. Wear a mask and gloves for this process.
• Professionally clean carpets, mattresses, and upholstered furniture that got wet. Consider discarding damaged items.
• Remove and replace drywall or paneling that was underwater. Ensure proper drying of wooden studs before replacing. The mess can wait. Stack the wet material also curbside.

Remember

• Floodwater may contain sewage – well water should be tested for contamination before use.
• Repair damaged septic tanks to prevent health hazards.
• Consider professional cleaning and repairs, but be prepared that local services may be overwhelmed.

Additional Tips

• Check on neighbors. Elderly or people who live alone are at greater risk.
• Flood insurance is separate from general hazard insurance.
• Keep important documents in a safe place for easy access during emergencies.
• Supplies you will want: 2 gallons of bleach, 2 gallons of white vinegar, two giant bags of baking soda, paper towels, rubber boots, cases of bottled drinking water, dry not perishable foods that don't need cooking, flashlights, hand soap, dawn dish soap, card tables or plastic tables to place items above the water line to dry, box fans, generator, wheelbarrow to haul items to the curb or use your rolling trash bins if you have them, 95 masks, clothing line or rope to dry things in the sun, plastic bins and clean wrapping paper to place items you cleaned in, drying wrack of some type.
• Your local hardware may be closed, seek ones at higher ground or farther away.

By following these tips, homeowners can stay safe and begin the recovery process after a flood.

FICO 10T and Vantage Scores

The FHFA mandates using FICO 10T and Vantage this year for Fannie Mae

and Freddie Mac Loans

What started as a push to reduce costs for the lower to moderate mortgage borrower in America now bows to the credit cops to incorporate both scores, thus increasing costs.

The magic is supposed to be that the lower end person with little credit history can use rental history, utilities and recent up trends in personal habits to overcome weaker credit.

What our government forgets is this was already being done by

every good mortgage lender for free on a hand written explanation,

uploading the history, and demonstrating in writing the cause.

FICO 10T and VantageScore 4.0, mandated by the GSEs (Fannie Mae and Freddie Mac), have the potential to increase access to home loans for borrowers with lower credit scores in a couple of ways:

• Considering a broader range of financial data: These new models look beyond traditional credit history, including rent, utilities, and telecom payments [2]. This can benefit borrowers who may not have a long history with credit cards or loans but have consistently made payments on other bills.

• Accounting for trends: FICO 10T considers if your credit score is on an upward trajectory, which could be helpful for borrowers who may have had past credit issues but have recently improved their financial habits [4].

However, it's important to understand some nuances:

• Minimum requirements likely remain: Even with the new models, lenders will still have minimum credit score requirements for loans. These may not change dramatically.

• Not a guarantee: Just because you have a higher score under the new models doesn't guarantee loan approval. Other factors like income and debt-to-income ratio will still be crucial.

Overall, the new scoring system is a step towards a more inclusive approach. Borrowers with lower credit scores who can demonstrate responsible financial behavior may have a better chance of qualifying for a home loan.