Stumped with a specific tax form wording for a state credit. Needs ELI5.

February 15, 2019 5:41 PM

Yes, YANML, but I got a simple question for a state rental/homeowners credit tax form that I'm completely having a hard time understanding (one section).

I know you're not my lawyer, and I don't expect legal advice, but this is more of an English/reading comprehension thing. Basically, I lived in DC all of 2018, but moved across town in mid-2018. DC has this neat Homeowners/Rent Property Tax credit thing in which you get reimbursed for some of the rent (property tax) you paid for renting. I currently pay $1900 (not exact, just for rounding and using as an example) per month. (In the past, I took advantage of this credit when living at my old home, but it was quite easy to do because I lived at one place all year.)

As I moved mid-year, a section of the tax document (under Instructions, page 2), here, says this:

"Note: If a claimant rents more than one home in the District in the same calendar year, rent paid by the claimant during the year is determined by dividing the rent paid pursuant to the last rental agreement in force during the year by the number of months during the year for which this rent was paid and by multiplying the result by 12. Multiply the rent entered by .20."

I'm seriously having a hard time reading/understanding this, and has gotten conflicting answers online.

-Some say that just means to extrapolate the rent effective 12 months (ie, $1900x12=$22800 paid).
-Some say just to do $1900x the number of months I actually paid rent.
-Someone else said that means do $1900/6 (6 months I lived here paying $1900 in full), then the result, multiply by 12. (ie, 1900/6*12 = 3800 as the amount of rent paid). I paid $1900 for 6 months, but did pay half of $1900 during the first month here, so I'm not sure whether or not to count that?

When ELI5/explaining to me in plain English, don't worry about the last part (multiply by .20) - I'm using HR Block and it does that part automatically for me. I'm just not sure how to understand what number to use in actuality for rent paid.

Thanks for any help you can offer!

posted by dubious_dude to Law & Government (12 answers total)

I read that as option 3. ($1900 / 6.5) * 12.

Advice online may be for prior tax years.
posted by muddgirl at 5:52 PM on February 15, 2019

Response by poster: Thanks, muddgirl. Disappointing if true, because if so, that wouldn't make me eligible for the credit, given the amount wouldn't exceed my AGI. If I were to extrapolate the rent x12 months, then I'd get a very generous and nice tax refund from DC, but I don't want to be on the wrong side of the law.

To show what I mean by "conflicting answers", I asked the same thing on Reddit, and got this answer: https://imgur.com/a/ZKCbbvs. (I covered our names, because I prefer to keep my online identifies separate.) This person seemed very certain that I would extrapolate the rent 12 months.
posted by dubious_dude at 6:27 PM on February 15, 2019

I read it as Option 1, intended to take whatever rental agreement you had by the end of the year and treat it as the rent you paid all year. To me, "the rent paid pursuant to the last rental agreement in force during the year" is an aggregate, not a rate - so if you paid $1900/month for six months, then you paid $11,400 pursuant to that rental agreement over the course of the year, and you divide THAT by six months which brings you right back to $1900, which you then multiply by 12 to get what would have been paid if that had been your rental agreement all year.

The clunky wording allows you to do this calculation even if your rent is not paid on a monthly basis.
posted by solotoro at 6:32 PM on February 15, 2019 [6 favorites]

Solotoro's logic makes sense to me.
posted by muddgirl at 7:06 PM on February 15, 2019

I read "rent paid" to mean the total amount of rent paid, not the monthly amount and then divided by the number of months. What this is does is to take the average if the monthly rent was not identical every month. Take that (monthly average for the place you lived at the end of the year) and multiply by 12, giving you the total rent for the year if you had been in that place all year. Then multiply by .20.

So, if your current monthly rent is $1900, you would get 1900 x 12 x 0.20

But that is just based on being a native American English speaker who has spent some time reading contracts and also used to be good a word problems. I know nothing about DC taxes. Maybe you could call a help line and get a real answer from someone who knows the intent of the tax law?
posted by metahawk at 7:24 PM on February 15, 2019

The example here makes it clear that the intention is that you should get a credit equal to 20% of your annual rent (scroll down to the top of page 3 where it says "The renter does not see a property tax bill, but can claim 20 percent of the annual rent paid to the landlord as a property tax estimate. A renter paying a monthly rent of $750 a month would pay $9,000 for rent in the year, and 20 percent of this (or $1,800) could be claimed as property tax under Schedule H.")

So you are trying to do is to annualize total rent based on the rent of where you live at the end of the year (instead of calculating it based on actual rent paid at the two different places) So I feel more confident in my advice that assuming that you are now paying $1900 every month, you will use 1900*12*0.20 as your number. But again, I know nothing about the actual tax code.

Before you get too excited, it looks like the credit maxes out at $1000 so it doesn't end with just this calculation.
posted by metahawk at 7:32 PM on February 15, 2019 [2 favorites]

I read it like solotoro did, except it's going to come out to be a bit lower than $1900 since you only paid half your first month.
posted by salvia at 10:45 PM on February 15, 2019

There’s an example in this dc.gov FAQ that agrees with option 1. Seems like a clunky way to say ‘compute this as if you lived all year at the place you lived on dec 31.’ (which is what other parts of these docs talk about)
posted by stobor at 7:35 AM on February 16, 2019

except it's going to come out to be a bit lower than $1900 since you only paid half your first month.

Assuming that the OP paid half rent for a full month, this is my interpretation as well. If the lease took effect mid-month, then they should arguably use the fraction of the month that rent was paid for. A lease starting July 16 would be for 5.5 months, so the halved rent for that first month divides out and you still arrive at the $1900 number.
posted by yuwtze at 7:49 AM on February 16, 2019

Response by poster: Thanks for all of the help! I may be a bit slow here, but I'm still a teeny bit confused. Are you all saying that I'd be OK doing #1 (1900*12)?

My lease began May 8, so not exactly half of the month, actually... so not sure how that would work.

And yes, IKYANML.
posted by dubious_dude at 6:02 PM on February 16, 2019

Solotoro's interpretation (and mine) is that the general method is to add up all rent paid under the last rental agreement (lease) you had in 2018, divide by the number of months that rent was for, then multiply by 12 to get a yearly number as if you had lived there all year.

Assuming you paid $1900/mo, except in May, when you paid $950, and sticking to whole months for now, you wind up with :
(950+1900+1900+1900+1900+1900+1900+1900)/8*12 = 14250/8*12 = $21375

This is slightly less than 1900*12 = $22800, because of the reduced rent you paid for May.

I'd argue (IANAL, IANYL) that since your lease started May 8, and the instructions say to divide by "the number of months during the year for which this rent was paid", you could consider that the rent was only paid for 7.77 months (24/31 days = 0.77 mo) instead of 8, which gives you:
(950+1900+1900+1900+1900+1900+1900+1900)/7.77*12 = 14250/7.77*12 = $22007.72

Though, if metahawk is correct and the credit is capped at $1000, then all three of those numbers will exceed that cap after you multiply by 0.20, and so your final tax bill will be the same no matter which of the three numbers you enter.
posted by yuwtze at 8:28 PM on February 16, 2019 [1 favorite]

Response by poster: Update: I called the DC tax center for clarification and got mixed answers...one person telling me to do Option #1, another telling me to do two Schedule H's for both places (even though it's impossible using HRBlock, there's no way to add another form), and one saying to total the rent paid for all of the year, then use the first (not last, unlike what the form says) landlord as the name. Ugh.

So, I decided to just add up the exact rent amounts I paid for where I'm living now (1900x6 and the amount I paid in May). Comparing that to if I did 1900x12 instead, I'd basically get ~$200 more. Not worth that feeling of possibly doing something wrong, so I'm willing to forfeit ~$200 to do the more "safe" thing, even if it may not be fully correct. As I've gotten many mixed answers, I think it's safe to stick to where I live currently and not x12 (it just feels dishonest, even if technically it was permitted on the form). Oh well.

Thanks for all the advice and help! They really should simplify the tax system and make it much more user-friendly, IMHO.
posted by dubious_dude at 4:30 PM on February 20, 2019