Determining If Your Assessed Value Is Too High                                                                                  

First, look up your property’s current real estate tax assessment on the Delaware County Property Public Access website located at http://delcorealestate.co.delaware.pa.us/pt/forms/htmlframe.aspx?mode=content/home.htm

then enter your Parcel ID Number or address to get your assessed value.  You can also find the assessed value on your county or township property tax bill.

The common level ratio changes every 12 months, and currently is 1.63 effective July 1, 2024. 

Once you have both the Assessed value and Common level ratio, you multiply the Assessed value by the Common level ratio to get the County Fair Value.  Then, you compare the Fair Market Value to the County Fair Value you just computed. If the County Fair Value is higher than the Fair Market Value you should hire the Law Offices of Spadea & Associates, LLC by July 31, 2024 to file an annual Real Estate Tax Assessment Appeal.

Calculating the Fair Market Value

If you purchased the property after August 1, 2023 and have a ALTA settlement sheet (that is less than 12 months old) you can use the sales price from the ALTA as the Fair Market Value, and do not need an appraisal.  However, if you bought the property at a short sale or foreclosure, or bought it before August 1, 2023 (more than a year ago), you must have an Appraisal to appeal the property tax assessment.    

Fees Involved                                                                                                                               

The Cost of an Appraisal is about $425.  The filing fee is $50 and is made payable to “Delaware County Treasurer”.  The Law Offices of Spadea & Associates, LLC will help you file the application and attend the hearing on your behalf in late September.  You pay us nothing if we are unable to reduce your assessment.  There are two types of assessment appeals, one is the annual appeal and the other is the interim assessment appeal. 

Annual Appeals                                                                                                                             

The annual appeal allows property owners to appeal their assessment once a year.  Annual appeals must be filed by August 1 of each year.  Remember, in the case of an annual appeal, the Board decision does not take effect until tax bills are issued the following tax year.  The Law Offices of Spadea & Associates, LLC will represent you at the hearing which is typically in late September and present evidence such as a recent appraisal with pictures.  The Board will determine the current fair market value for the property based on the appraisal and settlement sheet presented at the hearing.  The Board generally renders a decision within 10 weeks of the hearing date and notifies the property owner in writing.  If you do not agree with the Board’s findings you have the right to file an appeal within 30 days to the Court of Common Pleas. 

Interim Assessment Appeals     

The interim assessment represents the value difference (increase) attributable to any assessable improvement to the land and the resulting increase in land value, if any. Assessable improvements include, but are not limited to; new construction of a primary structure or the addition to any such structure and the construction of any ancillary, contributory improvements such as swimming pools, sheds, garages, etc.

If a property is subject to an interim assessment, a property owner will receive an “Interim Real Estate Assessment Notice.” This Notice will inform the property owner of the old assessment and new assessment. The bottom portion of the Notice contains an APPEAL REQUEST FORM. In order to perfect an appeal of an Interim Assessment, the property owner must return the bottom portion of the Interim Notice to the Assessment Office to request receipt of an Appeal Application within forty (40) days of the date of notification of the assessment change.  The appeal date will be noted on the Interim Real Estate Assessment Appeal Notice at the top right and bottom right or this notice.

To file either an interim or annual appeal, contact Gregory J. Spadea at the Law Offices of Spadea & Associates, LLC in Folsom, Pennsylvania at 610-521-0604.

Because of the potential increased focus on the audit of returns showing rental real estate losses, it is important to understand when Landlords are entitled to deduct losses from rental real estate as ordinary losses rather than having to treat such losses as passive.

To escape passive-loss classification, the Landlord must qualify as a “real estate professional” and must materially participate in the rental activity. Keep in mind this is not the only way to avoid passive loss. There is also the exception for up to $25,000 of losses of an active participant in a rental real estate activity under 469(i). Section 469(c)(7)(B) requires that a Landlord meet two tests in order to be considered a real-estate professional for a taxable year. Those tests are:

1. The Landlord must show that more than one-half of the personal services performed by him in trades or businesses were performed in real property trades or businesses in which he materially participated; and
2. The Landlord must show that he worked more than 750 hours in real property trades or businesses in which he materially participated.

The first test becomes an issue only if the Landlord is involved in another occupation in addition to real estate.  The courts in deciding the issue of “real estate professional” have not expressly dealt with this test; rather, they use the fact that the Landlord spent time in an occupation outside of real estate to buttress their conclusions that Landlord has not met the 750-hour test.

I always recommend that Landlords keep contemporaneous time logs, time reports or calendars that they can input manually into a day timer or type into a google calendar.   The log or calendar should provide a detailed account of what the Landlord did with respect to an activity, when he did it, and how much time it took. 

Rental services that qualify for meeting the 750 hour annual requirement includes, but is not limited to:

1. Advertising to rent or lease the real estate;
2. Negotiating and executing leases;
3. Verifying information contained in prospective tenant applications;
4. Collection of rent;
5. Daily operation and management;
6. Maintenance and repair of the property, including the purchase of materials and supplies;
7. Supervision of employees and independent contractors.

It is a common misconception, however, that qualifying as a real estate professional makes the Landlord’s rental activities nonpassive. This is not the case; rather, a Landlord who qualifies as a real estate professional has merely overcome the presumption that all rental activities are passive regardless of level of participation. For the real estate professional’s rental activities to become nonpassive activities, the Landlord must establish that he or she has met the material-participation standard with regard to the rental activities.  Only those rental activities in which the real estate professional materially participates are nonpassive activities.

Importantly, the statute provides that a qualifying real estate professional must establish material participation in each separate rental activity. An exception is provided, however, by which the Landlord may elect to aggregate all interests in rental real estate for purposes of measuring material participation.  The landlord can elect to treat all rental properties as a single rental activity by filing a statement with his original income tax return for the taxable year.  Merely aggregating rental income and expenses on Schedule E does not suffice.  Without an election, the Landlord must examine each rental property to determine whether he materially participated in the rental of that property.

Material Participation

Material participation is determined under the seven tests set forth in Treasury Regulation § 1.469-5T. To prove “material participation,” the Regulation allows grouping real-property trades or businesses based upon facts and circumstances. The regulation lists 11 types of real property trades or businesses: real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage. However, rental activities cannot be grouped with other real-property trades or businesses.  The seven tests are: 

1. The individual participates in the activity for more than 500 hours during the tax year.
2. The individual’s participation in the activity for the tax year constitutes substantially all of the participation in such activity of all individuals (including individuals who are not owners of interests in the activity) for the year;
3. The individual participates in the activity for more than 100 hours during the tax year, and the individual’s participation in the activity for the tax year is not less than the participation in the activity of any other individual (including individuals who are not owners of interests in the activity) for the year;
4. The activity is a significant participation activity for the tax year, and the individual’s aggregate participation in all significant participation activities during the year exceeds 500 hours;
5. The individual materially participated in the activity for any five tax years whether or not consecutive, during the 10 tax years that immediately precede the tax year;
6. The activity is a personal service activity, and the individual materially participated in the activity for any three tax years whether or not consecutive preceding the tax year;
7. Based on all of the facts and circumstances, the individual participates in the activity on a regular, continuous, and substantial basis during the year.

There are several important considerations when measuring material participation in a Landlord’s real property trade or business.  First, hours spent as an employee are not counted unless the employee is a 5% owner in the employer. Second hours spent as an investor in a real property trade or business such as studying and reviewing financial statements, preparing summaries of the finances or operations, or managing the finances of an activity in a nonmanagerial capacity are not counted toward material participation unless the Landlord is directly involved in the day-to-day management of the business.

In addition, if the individual holds an interest in a real property trade or business through a limited partnership interest, the individual may establish material participation only by satisfying the first, fifth, or sixth tests of the seven tests from the regulations described above.

When measuring material participation, an individual taxpayer is required to count any hours performed by his or her spouse, even if the spouse does not own an interest in the business or if no joint return is filed.  While this rule is advantageous because it makes it more likely the taxpayer materially participates in the real property trade or business, it is a trap for the unwary in the real estate professional context.

The relevant case history has established that it is very difficult for a Landlord who has a full-time job that is not in a real property trade or business to satisfy this first 50% test. The IRS and the courts find it dubious when a Landlord who works 2,000 hours a year at a non-real estate job purports to have spent more time on his or her real estate activities.

If you have any questions about material participation or being a real estate professional call Gregory J. Spadea at 610-521-0604.    

What Landlords and Tenants Need to Know about the Implied Warranty of Habitability

The Pennsylvania Supreme Court has ensured that tenants have the right to a decent place to live.  This guarantee to decent rental housing is called the implied Warranty of Habitability.

The Warranty means that in every residential lease in Pennsylvania whether oral or written, there is a promise (the Warranty) that a landlord will provide a home that is safe, sanitary, and healthful.  A rental home must be safe to live in and the landlord must keep it that way throughout the rental period by making necessary repairs.  Even if the renter signs a lease to take the dwelling “as is”, the Warranty protects the individual.  The right to a livable home cannot be waived in the lease.  Remember, the Warranty is in the lease, whether or not the lease says so.  Any lease clause attempting to waive this Warranty is unenforceable.

The Warranty does not require the landlord to make cosmetic repairs.  For example, the landlord is not required to repair faded paint, install new carpeting, or make other cosmetic upgrades or improvements.  However, the landlord must remedy serious defects affecting the safety or the ability to live in the rental unit.

The following are examples of defects covered by the Implied Warranty of Habitability:

• Lack of hot and/or cold running water
• Defunct sewage system
• No ability to secure the leased premises with locks (doors, windows)
• Lack of adequate heat in winter
• Insect or rodent infestation
• Leaking roof
• Unsafe doors, stairs, porches and handrails
• Inadequate electrical wiring (fire hazard) or lack of electricity
• Inability to store food safely because of broken refrigeration unit (when the landlord is responsible for maintenance and repair of refrigerator in the lease)
• Unsafe structural component that makes it dangerous to occupy the premise

If you are a tenant living in leased premises that have any of the defects listed above you have the following legal rights after you have complied with the notice requirements of the lease:

1. the right to withhold rent until repairs are made, or
2. the right to “repair and deduct”—that is, to hire a repairperson to fix a serious defect that makes a unit unfit (or buy a replacement part or item and do it yourself) and deduct the cost from your rent.

If you have any questions or need a landlord tenant lawyer, please call Gregory J. Spadea at 610 521 0604.  The Law Offices of Spadea & associates, LLC has been helping landlords and tenants since 2001 and is located in Ridley Park, Pennsylvania.