Beware of False Service Animals

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One of the most effective public policy campaigns of the last few decades has been the one that taught us not to park in spaces reserved for the disabled.

A combination of robust public education and stiff penalties has helped make it universally understood that able-bodied persons should avoid parking cars there.

A newer push is underway to curb the growing practice of people passing their pets off as service animals. While most people associate the conflicts this practice presents with access to business - particularly restaurants - landlords are also increasingly impacted.

It’s not hard to see why so many people find it easy to commit this kind of self-serving fraud. The federal regulations governing the rights of individuals with disabilities to be accompanied by animals are murky. Three different federal laws govern this space and the result is an array of confusing and conflicting regulations. 

One thing all the federal laws have in common: no certificates or proof of training is required, only the word of the potential tenant.

Many states have stepped into this void by enacting stricter rules. To date, twenty states have passed anti-fraud measures. Of those, sixteen make misrepresenting a service animal a misdemeanor or petty offense punishable by fines, jail time, and/or community service.

The states that have passed laws are California, Colorado, Florida, Idaho, Kansas, Maine, Michigan, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Texas, Utah, Virginia, Washington, and Wyoming.

The growing trend in service animal fraud can make it more difficult for people with true disabilities to gain access to places they need to go. 

Property investors may see an increase in renters trying to claim service animal status for their pet. With state legislatures and courts actively settling issues regarding the rights of those with emotional, therapy, or comfort animals, many people may seek to call their pets service animals. 

REIAs in states that have not enacted service animal fraud laws have an opportunity to build new partnerships with disability groups to form a coalition in support of such laws. 

Seek out your state and local disability rights organizations, as well as any organizations representing service dog trainers. Look for training businesses or groups accredited by Assistance Dogs International, a service dog standards group. These groups have an interest in protecting the integrity of service animal status and can be valuable allies in getting laws passed in your state.

If you do plan to propose a law in your state and want to know the different ways you can craft it, a review of the various state laws on this subject can be found here:  https://www.animallaw.info/topic/table-state-assistance-animal-laws


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Help! :) Student Housing Needed

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Each Spring/Summer the Home Depot invites students from other countries to work at the stores located in Sandy, Brickyard, and West Valley.

On March 27th the Sandy store will have 11 students arriving from the Philippines. At this time, they have no housing. Students will stay through June with a few staying until August 10th.

If you have a vacant house (preferably with utilities connected), this would be a perfect opportunity to get it rented for a short term. Each student plans to pay $300 per month and they would prefer to stay together, if possible.

Here are other requested guidelines from the Home Depot:
  • Close (walking, bike, or bus) to the Home Depot South Sandy (135 East 11400 South)
  • One bed per student (they can purchase their own air mattress if beds are not available)
  • Can sleep several to a room (last year 8 slept in one room with bunk beds)
  • Access to a bathroom and kitchen (can share with the rest of the household)
  • Owner is required to pick up students from the airport upon their arrival

If you are interested, please contact Danielle Lueck at (801) 523-0069 x 077 or send an e-mail to danielle_r_lueck@homedepot.com.

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Tax Reform Was Passed, Signed & Delivered

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As there has been a great deal of hype on all sides of tax reform, let’s see if we can dig into the issues with more light and less heat.  Hopefully you find this helpful and instructive on items that will no doubt have lasting ramifications and unintentional consequences for many years.  The summary: The reforms should be good for real estate, with tax advantages for pass-through entities improving.  Before making decisions based on tax reform, please be sure to speak with a tax accountant up to date on the all real estate rules, as those will be coming fast and furiously from the IRS!  To start, let’s get a quick understanding about “the process” and how we got here:

The rules in the Senate, specifically those about budget reconciliation drove the GOP Tax Reform process; or more perhaps accurately, hemmed it in.  The Senate rules would not allow not budgetary items to be included in the bill, though somehow the opening of the ANWR for oil drilling was deemed appropriate.  I say that not to be tongue in cheek or sarcastic, but to highlight that the rules of the Senate can be rather extensive and somewhat archaic.  Nothing illustrates that more the Byrd Bath, or Byrd Rule, named after Sen. Byrd of WV, who was prolific in his ability to ear mark projects (and have them named for him throughout the state).  This provision limits a budgetary item from being either “extraneous” to the budget or would significantly increase the federal deficit beyond a ten-year term.  Those definitions, and the reference to the 10-year life span of legislation for the Senate, are key.

Second Amendment advocates may remember that the “Assault Weapon Ban” approved by the Senate had a 10-year life, as do many bills passed they pass.  This is especially true of bills that would expand the deficit beyond the 10-year time frame.  So…a budget item must have sufficient financial offsets, per the Senate’s staff accountants, The Congressional Budget Office.  Which then leads to a trade-off of budget items.

Think of it this way, your budget includes travel, car payments, shelter, clothing, school fees, etc.  In December you decide to set your car payments & mortgage/rent for 12 monthly payments, but you’re only going to spend on travel for the first 3 months, clothing once a quarter, and lastly school fees only twice a year.  If you increased any of those, your budget goes out of whack – ignoring that the US is already deficit spending 30%+ of its budget.  So you may make the trade-off (gamble?) that spending for travel will drop to the first two months and you will increase the mortgage/rent – permanently.  That works for this year, budget-wise, but next year (or the next ten-year Senate cycle) you still have to live with that “new” base-line expense.

With that understanding, it is important to note that the deficit restriction, self-imposed by the GOP, was $1.5 Trillion.  Each tax cut has its own “expense” or cost to the budget.  As the dust settled, some were set to start immediately, others like the quarterly clothing expenses in our example above, start at different dates.  Additionally, some of the items, like the travel allowance, are set to expire or sunset on specific dates.  Is your head spinning yet?

Now that we know those details…let’s dig into the specific details of the bill.

The flagship piece of the puzzle is the reduction in corporate tax rate.  This rate was reduced from 35% to 21% – and it is permanent.  This reduction moves the US from one of the highest rates in the world to among the lowest.  The Trump Administration’s goal, in sync with Congressional GOP leaders, is to make the US a haven for Corporations world-wide.  (click here for more details charts – prefer table #1.)

The next key item is that of the Individual tax rates lowered for 80% of tax payers.  There are 7 tax brackets (listed below)

2018 Income Tax Brackets

The goal was to simplify the system so that with standard deductions, which were nearly doubled: Singles from $6,500 to $12,000 and for Couples from $13,000 to $24,000.  Part of the reason for the increase was to remove the personal exemption line item and consolidate the process.  Ideally, most taxpayers will be able to use a post card format to submit their taxes…needless to say, we are still always away from that goal.

The child tax credit was doubled to $2k and a non-child dependent was added for elderly parents, but then only at $500.  Additionally, these tax reforms are to sunset in 2025.  The goal of the current Administration and Congress is to make these permanent and even improve on them, but alas that will need to wait for the next bill.

SALT anyone?

The State and Local Tax deduction (SALT) was one of the most hotly contested and philosophically charged issues.  The argument is that if those deductions are allowed, then low tax areas are subsidizing high tax areas, because people in high tax areas don’t pay as much to the federal government due to local and state taxes creating such a large deduction.  Most of the Republicans come from low-tax areas and Democrats from high-tax urban areas, so the political divide was substantial.  However, there were some Republicans from high tax states, and a concern for low-income workers who would be harmed by the elimination of the deduction.  So, a $10K cap on deductions was implemented.  For comparison, the average New York City tax payer deduction exceeds $50K.  The cap helps low income workers, but doesn’t soften the blow very much for those in areas that have decided to tax, tax and tax again!  Corporations are still allowed to deduct SALT, while individuals with pass through entities are capped at $10K.

Pass through entities – Where Real Estate Investors Live!

The vast majority of real estate investors utilize pass through entities like Limited Liability Companies.  There was a lot of hype on these entities, the rates and various proposed modifications. In general, Pass Through Entities received a tax cut as well.  The details are a bit more complicated.  Bloomberg News, stated it this way,

“The bill sets several restrictions for the type of pass-throughs eligible for the deduction and how much they’re allowed to claim, based on the wages the entity pays, the amount of equipment the entity purchases, and how much the owner earns. It excludes many service businesses from the tax break.”

During the tax reform debate, there was significant concern that if the separation between corporate rates/benefits and pass through entities became too great there would be a mass conversion from pass through entities to corporations.  Experts (economists) do not believe that is the case presently, though as numerous wealth, finance and business outlets have noted, this will be a conversation to have with your CPA, as there are still significant benefits to the flexibility of pass through entities, especially with the capturing of depreciation, expanded expensing provisions and the lack of corporate tax layering.

While there is a 20% tax reduction in the reform for pass through entities, there are provisions to limit active owners who receive a salary from re-characterizing their income so as to avoid taxes.  Passive investors are treated a bit more friendly – and in this area more than any other, they will need to have a specific conversation about their situation with an up to date tax consultant.  Click here for more information from Alistair Nevius and The Journal of Accountancy.

Pass-through income deduction

For tax years after 2017 and before 2026, individuals will be allowed to deduct 20% of “qualified business income” from a partnership, S corporation, or sole proprietorship, as well as 20% of qualified real estate investment trust (REIT) dividends, qualified cooperative dividends, and qualified publicly traded partnership income. (Special rules would apply to specified agricultural or horticultural cooperatives.)

A limitation on the deduction is phased in based on W-2 wages above a threshold amount of taxable income. The deduction is disallowed for specified service trades or businesses with income above a threshold.

For these purposes, “qualified business income” means the net amount of qualified items of income, gain, deduction, and loss with respect to the qualified trade or business of the taxpayer. These items must be effectively connected with the conduct of a trade or business within the United States. They do not include specified investment-related income, deductions, or losses.

“Qualified business income” does not include an S corporation shareholder’s reasonable compensation, guaranteed payments, or — to the extent provided in regulations — payments to a partner who is acting in a capacity other than his or her capacity as a partner.

“Specified service trades or businesses” include any trade or business in the fields of accounting, health, law, consulting, athletics, financial services, brokerage services, or any business where the principal asset of the business is the reputation or skill of one or more of its employees.

The exclusion from the definition of a qualified business for specified service trades or businesses phases out for a taxpayer with taxable income in excess of $157,500, or $315,000 in the case of a joint return.

For each qualified trade or business, the taxpayer is allowed to deduct 20% of the qualified business income for that trade or business. Generally, the deduction is limited to 50% of the W-2 wages paid with respect to the business. Alternatively, capital-intensive businesses may get a higher benefit under a rule that takes into consideration 25% of wages paid plus a portion of the business’s basis in its tangible assets. However, if the taxpayer’s income is below the threshold amount, the deductible amount for each qualified trade or business is equal to 20% of the qualified business income for each respective trade or business.

An article on CNN-Money also points out that, “The 20% deduction would be prohibited for anyone in a service business — unless their taxable income is less than $315,000 if married ($157,500 if single).”  So, if you separate the service, maintenance, or management company responsibilities, a global review may be in order.

Live-in Home remodeling?  If you and your spouse take on the task as a daily effort, or they put up with your ongoing renovations, please know that this tax reform still has a carve out to protect up to $250K for Singles and $500K for Couples in capital gains from selling a house, as long as it was a primary residence for two of the last five years.

Landlords were thrown a bone in that moving expenses are no longer tax deductible, except for certain military exemptions.  One less incentive for renters to move about and cause turn-over costs.  Why moving expenses were ever deductible in the first place is the real question!

A couple of final items worth noting for investors, if your lofty goals of becoming a wealthy land baron come true, know the new estate tax exemption has been raised to approximately $10M for singles and $20M for couples.  Additionally, if you are on your own for insurance you will no longer be penalized for not purchasing a federally approved plan – the ACA mandate (aka Obamacare) was removed.

There will be plenty more written about this as the accountants breakdown each phrase, the IRS issues regulations and “clarifications” and of course the occasional tax precedent via the courts.  In the meantime, enjoy a rousing conversation with your partners and adapt to the new tax scheme.

 

Charles Tassell is the Chief Operating Officer of National REIA.


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New Location Announced for Networking Luncheons

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As the success of the Utah REIA Networking Luncheons has exceeded the capacity at the Red Robin in Murray, starting December 12, 2017, the Utah REIA will be hosting the Networking Luncheons at the Salt Lake Community College, Miller Campus, Miller Free Enterprise Center (MFEC), Room #203 located at --9750 South 300 West, Sandy, UT 84070. 

What is so great about this facility is not only does it have room for growth, but it also provides more flexibility when it comes to lunch.  Not only will you have the opportunity to bring your own lunch, but there is also a full blown cafeteria (that opens as early as 6:30 a.m.and starts serving lunch at 11:00 a.m.) complete with hot food, a grill special, a salad bar, sandwiches, and a convenient store at the Culinary Institute building just down the parking lot.

Click here for a map of the Miller Campus.  


Feel free to grab your food early and join us at the MFEC in room #203 for networking beginning at 11:30 a.m.

The presentation will then begin at 12:00 p.m. and go until just about 1:00 p.m.leaving enough time for questions and prize give-aways.

If you have any questions regarding this change, feel free to contact Rebecca Dearing personally by calling or texting (801) 647-8862 or by sending an e-mail to rebecca@utahreia.org.

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Avoiding Bad Tenants

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Minimize your risk of getting a bad tenant by following these important pointers:

 

Screen Every Applicant

Background checks should include five steps:

  1. Credit

  2. Criminal

  3. Financial (income, employment, overall stability)

  4. Current landlord reference

  5. Previous landlord references

 

Verify these five areas to increase the likelihood of successfully weeding out applicants who lie or misrepresent information to try to hide their bad history. A good screening process will help save you the hassle and headache repairing damage, collecting lost rent, and paying an attorney, like Jonathan Kirk at Kirk Law, to collect lost rent and the cost to repair any property damage.

 

Kirk Law recommends that you use Western Reporting for tenant background checks because they check the “blind spots” that other background screening companies don’t check. Quite frankly, they are the best. Don’t cut corners. Use Western Reporting.

 

Follow Rental Criteria

Verify that each applicant meets certain criteria, which may include things like:

  • photo identification

  • employment (minimum time at current employer)

  • income (a maximum percentage of the household income for rent payments)

  • rental history (addresses and names/contact info of landlords from past 5 years)

  • credit history (no collection accounts or no bankruptcies within 2 years)

  • criminal history (sex-offenders or criminal convictions suggesting a present threat to the owners, neighbors, or property)

 

Immediately notify an applicant who qualifies, and get them to sign the lease within 24 hours or move on to the next applicant. Don’t try to pick the “best” applicant. If you use your gut feeling, you may accidentally discriminate against a protected class, like familial status. But remember, Utah law requires you to disclose rental criteria before accepting an application fee.

 

Contact Kirk Law at 801-980-0388 to evict a bad tenant, collect money for rent or damages, or to defend you against allegations that you discriminated or violated Fair Housing laws. Kirk Law will provide superior legal services at reasonable rates. With over 60+ years of experience, you can count on the attorneys at Kirk Law to take care of you! Visit our website: www.kirklawutah.com.


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Make Section 8 and Optional Government program

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Our friends at the Utah Apartment Association has notified us of a need to alert our Senators of the desire to make Section 8 an Optional Government Program. Details are below:

The rental housing industry had a big week at the legislature and we need your help to make sure our gains are not released.

What we need from you:

Housing Authorities and their advocates are engaged in a grass roots efforts to contact Senators to urge them to vote against a bill that is GREAT for our industry and affordable housing. We need your help contacting your Senator as a constituent and letting them know how good this bill will be for affordable housing. SB 175 Fair Housing Option Amendments, Margaret Dayton (R), Orem, has passed out of Senate committee and will go to the floor of the Senate this week for a vote. The housing authorities and advocates will be sending emails this week to Senators claiming the sky will fall if this bill is passed. Nothing could be further from the truth and emails from actual constituents of each Senator will counter this hysteria. We need your help to let your Senator know what this bill does and why they should support it.

What this bill does:

It allows Utah landlords to opt out of working with housing authorities, by allowing us to refuse to work with the Section 8 voucher program without being discriminatory. Here is the actual language of the bill:

(a) Government assistance payments paid to a landlord under the housing choice voucher program administered by the United States Department of Housing and Urban Development are not part of a tenant's income for the purposes of this chapter [i.e. for Fair Housing]

(b) A landlord's refusal to participate in the housing choice voucher program does not constitute a discriminatory housing practice under this chapter.

In other words currently Section 8 is a protected class and refusing to work with Section 8 could get a landlord a $10,000 fine. This bill will allow landlords to opt out and not be liable for discrimination.

What the bill does not do:

Housing Authorities and advocates say this bill will hurt affordable housing and low income tenants. We believe that is not true. Section 8, like Medicare, was designed as an optional government program. Doctors can opt out of Medicare if they don't want to deal with the restrictions or bureaucracy of the program, and landlords should be able to opt out of Section 8. 41 states allow landlords to opt out of Section 8 and the program works just fine there. Texas and Indiana passed similar bills last year to what is proposed in Utah, and nothing bad happened to low income tenants. This is an issue of business freedom.

There are 11,000 section 8 vouchers in Utah, out of almost 300,000 rental units. That's only 4%. Housing authorities Section 8 tenants, Property Managers, Landlords and attorneys testified last week at a hearing that if this bill passed only about 10-20% of landlords would actually stop taking Section 8 vouchers. But even if 50% of the 300,000 rental units became unavailable to Section 8 participants, there would still be almost 15 times as many units available as are needed. In addition, there are almost 20,000 government subsidized affordable housing units under various programs that would love to take section 8 tenants - and that's even before the private market.

What we need from you:

1 - Go to this website http://le.utah.gov/GIS/findDistrict.jsp to find your State Senator (just put in your street address and Zip Code, i.e. "448 East Winchester 84107"). Make sure to only find your Senator (the House hasn't taken up the matter yet). Then using the contact info it pulls up, send a short email with the subject line: "Constituent who supports SB 175" that says something, in your own words, like:

Dear Senator,

*I am a constituent and voter in your district who is in the rental housing business

*I support and ask you to vote in favor of SB 175 Fair Housing Option Amendments

*When mandatory section 8 was passed in 1989 the government guaranteed the condition of the rental after the tenant moved - something they no longer do

*We love low income tenants and this bill is not focused on them, it is focused on the government bureaucracies that run the section 8 program

*Unfortunately, because landlords have to accept section 8, many housing authorities who administer the program treat landlords poorly and don't follow their own policies

*This bill would restore market forces to housing authorities, who would have to treat landlords better or lose them as customers

*41 other states have this same law and two states last year, Texas and Indiana, passed similar laws and the section 8 program actually works better in states where there is choice

Thanks for your support.

Feel free to share any bad experiences you have had with housing authorities or money you have lost by being forced to take Section 8 (PLEASE don't bash the tenants. We are only focusing on how the Program itself and the Housing Authorities have caused problems).

By Rebecca Dearing on Feb 29, 2016


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