Did You Lose an Important Income Tax Deduction?
Over the past month or two, we have striven to bring you the latest news on the new income tax plan recently passed by Congress. While the impact of the new laws will vary from one person to the next, one issue is likely to affect many California residents: The popular deduction for state and local taxes has been limited to $10,000 per year.
To some extent, this news could have been worse. Many lawmakers originally wanted to axe the deduction altogether! Still, limiting the tax provision to $10,000 annually might cost some of you a bit of money. That’s because our property taxes here in California tend to be relatively high, compared with the rest of the nation. A lot of you probably depended on that deduction to lower your taxable income each year.
Since the new deduction limit won’t take effect until it’s time to file your 2018 federal income tax return, some homeowners scurried to their local tax offices to prepay property taxes for this year. That way, they could possibly still utilize a large income tax deduction for 2017. But, as you might have heard, you could only take that action if your 2018 taxes had already been assessed. Those who attempted to estimate this year’s property tax bill, and prepaid it to access a larger deduction for 2017, might find themselves disappointed to learn that the effort was essentially fruitless.
So, does that mean you won’t be able to deduct property taxes (or other state and local taxes over $10,000) on next year’s tax return? Possibly, but because this issue so deeply affects those living in high-tax areas, many local governments are looking for a creative workaround.
In New Jersey, for example, some localities are considering a move toward a municipal “charitable fund”. Theoretically, those who make a contribution to the local fund would receive a credit in that amount toward their property tax bill. And guess what: Charitable contributions are still deductible, subject to certain limits, on your federal income tax return.
Will local governments in California consider similar plans? There’s no way to know for sure at this point, but depending where you live, your city planners might already be considering the issue. Over the next year or two, it is possible we will see some changes in local tax structures, in order to accommodate homeowners impacted by the new income tax deduction limits. We can’t be sure of these exact changes, of course, but contacting your local representatives to express your views is always a good idea.
We will continue to keep you informed on this, and other tax issues, that might affect you. In the meantime, you can contact our real estate attorneys for more information specific to your situation.
What is Your Landlord’s Responsibility in the Case of a Fire?
In most cases, the responsibility for fire safety is split between landlord and tenant. However, because individual cities might enforce additional requirements, beyond those set forth at the state level, it would be impossible to determine each party’s exact obligations without taking a look at your lease. Having said that, the following general requirements apply in many, or most, situations.
Compliance with building codes. Before renting a space, commercial landlords must comply with all standards regarding habitability, accessibility, and safety. This includes fire safety. However, since building codes can change over time, this is not a “once and you’re done” proposition. When compliance standards change, commercial landlords must update their properties appropriately. Conducting regular inspections and making the necessary upgrades or repairs can keep buildings up to code.
Maintenance and repairs. Tenants are usually responsible for general maintenance and repairs, beyond those laid out by building codes. This would include things like removal of hazardous materials, plumbing repairs, maintenance of electrical and air conditioning systems, and so on. Smoke detectors and maintenance of sprinkler systems would fall into this category and, therefore, are the tenant’s responsibility.
Insurance requirements. Landlords should carry appropriate commercial property insurance on all of their buildings, to cover losses to the structure. These policies might also cover contents of the building, but since that coverage can be limited, tenants should also purchase their own insurance coverage for valuable business equipment. Most commercial leases require the tenant to maintain insurance.
On-site injuries. Landlords can be held responsible for on-site injuries only if the injury was caused by negligence to uphold their end of the lease agreement (and all applicable legal obligations).
In the case of wildfires, we are dealing with a natural disaster that is largely uncontrollable. However, both landlord and tenant should still take the time to review their lease, inspect the building, and ensure that both parties have complied with all legal responsibilities with regard to maintenance and safety.
If you need help with your commercial lease, or have any other questions about your rights and responsibilities, call our real estate attorneys for advice specifically geared to your situation.
New Legislation for Landlords Regarding Bed Bugs
Earlier this year, they did exactly that. A man in Maine, frustrated over his previous landlord’s lack of compliance with the law, reported the violation to his city’s Code Enforcement office. He had no other choice but to move from his infested residence to a new one, and wanted to ensure that the City followed up with the landlord’s violation.
Unfortunately, the office also followed up with his new landlord, since they were required to inform that building manager that their new tenant might bring bed bugs with him. After being informed that he could no longer move into his new residence, the frustrated Maine citizen returned to the city office where he angrily tossed an open jar of bed bugs onto the counter. He certainly made his point as to the severity of bed bug infestation; the office was closed and cleaned immediately.
The above story is amusing, but it makes an important point about lesser-known real estate laws. In fact, just this year our own state of California enacted new legislation regarding bed bugs! Effective July 1, 2017 for new tenants, and January 1, 2018, for existing tenants, the landlord must provide a written disclosure regarding information about bed bugs, with prescribed language as set forth in the law. Additionally, there are restrictions on what a landlord can do with a property that has a bed bug infestation. If you’re a landlord with questions, you should contact our real estate attorney and familiarize yourself with this law.
Because bed bugs can be such a pervasive problem, not to mention extremely difficult to eradicate, the new law addresses the issue from multiple angles. The first provision for a landlord to remember is that a landlord cannot show, rent, or lease any unit known to be actively infested with bed bugs. If the infestation is noticeable upon visual inspection, the landlord is considered by law to have notice of the problem.
Second, and perhaps most important with regard to leasing agreements, landlords are now required to provide written disclosure to all tenants regarding bed bug prevention and detection. Tenants should also be informed of proper procedures for reporting suspected infestations. If a landlord is properly informed, then the landlord must have a qualified inspection and, within two days of inspection, notify the tenants in writing of the pest control operator’s findings.
The form of these documents are subject to strict procedures under the law. With the new bed bug laws now in effect, all landlords should update their leasing forms and learn how to lawfully proceed and communicate with tenants. Call us if you need assistance and we can get you up to date.
Top Nine Commercial Leasing Mistakes for a Landlord to Avoid
A commercial lease is a legal agreement between a landlord and tenant, and like any legal agreement, there are many potential pitfalls. Because of both the increased complexity of commercial leases and the high dollar amounts typically involved, it is critical in most cases that you consult a real estate attorney before signing such a document, whether you are the property owner, the owner’s representative, or the tenant.
It would not be possible to outline, in a single blog, all of the possible mistakes that a commercial landlord could make in a lease. We all know how complicated the law can be at times. However, we have found that many legal mishaps arise from the following situations, so getting familiar with them is a good way for commercial property owners to avoid problems.
Asking the wrong questions. Even if you don’t intend to do so, asking certain questions of your prospective tenant could give the impression that you intend to discriminate based on race, religion, gender, disability, and so on. These types of discrimination are strictly prohibited by the Fair Housing Act.
Illegal provisions. Be careful about provisions that you include in the lease; legality can vary from state to state, and even city to city.
Failure to make disclosures. Even though commercial leases do not carry the same disclosure burdens as residential leases, there are many laws on the books regarding which facts you must disclose to tenants (such as the presence of mold, or lead paint, for example).
Repair problems. A commercial lease should clearly state who is responsible for what types of repairs. Failure to follow up on your end of the deal can result in loss of rent, a severed lease, and monetary damages.
Safety. In some cases, tenants have won lawsuits against landlords who knowingly allowed unsafe conditions or activities to persist. Laws regarding safety can vary according to location.
Privacy. In most cases, strict regulations exist regarding when and under what circumstances the landlord can enter the property.
Security deposits. Many a former tenant has successfully sued for the recovery of the security deposit after moving out of a unit.
Inappropriate disposal of abandoned property. Believe it or not, there are actually rules governing how landlords may proceed with disposing of property left behind by former tenants.
Improper eviction process. Your lease should clearly outline the situations under which the lease can be prematurely terminated by you, the landlord, and you must follow the law to the letter.
These are just nine of the most common commercial leasing problems experienced by landlords. When you consider that there are several, if not dozens of ways that each of these problems can manifest, it’s easy to see how unfortunate situations can multiply quickly. Consult with our real estate attorneys before devising or signing a commercial lease, and we can help you avoid many legal complications of property ownership and management.
Can A Buyer Sue a Seller for Non-Disclosure of a Defect?
Imagine this scenario: After months of searching, you locate the perfect home for your family. It’s the right size, it’s in the right neighborhood, you love the yard, and the price fits your budget. You put in an offer, are approved for a mortgage, and proceed to closing. After moving into the home, you discover evidence of a roof leak. A roofer tells you it will cost several thousands of dollars to repair, and you’re understandably upset. Now you wonder whether you can sue the seller of the home for non-disclosure.
The answer to that question seems simple on the surface: in most cases, you cannot. Once you have signed all of those papers on closing day, the home is yours – in whatever condition it happens to be. That’s why it’s so important to obtain a home inspection, consult with a real estate attorney if you have questions or concerns during the process, and check out every aspect of a property before proceeding with your purchase. In the vast majority of these cases, you will not be able to sue for alleged non-disclosure of a problem with the property.
There are, however, some exceptions to this general rule. California law is very strict with regard to disclosures, requiring sellers to disclose everything that “might reasonably affect the value or desirability of the property” – that’s the standard. Do you have evidence that the seller knew of the issue and failed to disclose it? Remember that the burden is on the buyer to prove that fact. In order to sue for non-disclosure, a buyer must be able to prove active, intentional concealment of a defect. If the defect was right out there in the open and you simply failed to discover it before taking possession of the property, then the mistake is all yours.
If you do believe the seller engaged in purposefully deceitful behavior, which prevented you from discovering a problem, then you might have good cause for a lawsuit. These cases are tricky to prove, however, so seek the counsel of our real estate attorney before attempting to proceed in court. There are also procedural issues. The standard California purchase agreement requires that you mediate any claim first, before proceeding with litigation (or mandatory arbitration, if that provision of the contract is initialed), or risk losing the right to recover attorney fees if one fails to do so. There is an exclusion to that requirement for claims that fall under the small claims limit, which is currently $10,000 in damages for an individual. The bottom line is that there are multiple considerations if a buyer believes that he/she has been deceived by a seller in the purchase of a home. Do not head down that path, with its many pitfalls, without first consulting with a real estate attorney.
When is Real Estate Withholding Required?
You sell your home for a tidy profit…. and you’re surprised on closing day when the state of California withholds some of your gain. What just happened? Does California really tax home sales?
No, home sales absolutely are not taxed, at least not as a separate tax unto itself. However, real estate withholding does address an income tax issue. Just as state income taxes are withheld from your paychecks each week, some taxes may be withheld from the profit of your real estate transaction. That’s because profits from real estate transactions are considered part of your overall taxable income for the year.
It might seem annoying, but withholding the taxes now can prevent you from enduring a very unpleasant surprise when you file your income tax return the following spring. No one wants to find out they owe the state hundreds or even thousands of dollars!
Real estate withholding is required whenever a transfer of title on real property occurs. Examples of these situations might include:
- Sale of the property
- Gifts or exchanges of property
- Leaseholds or options
- Short sales
- Vacant land is transferred
- When personal property is included with real property, if not stated separately
Generally speaking, it is the responsibility of the buyer to perform withholding, but often the real estate escrow company involved in the transaction will take care of it.
Naturally, there are numerous exceptions to the real estate withholding requirements, and they are all quite complicated. If you’re selling a real estate property in California, consult with a skilled real estate attorney on your rights and responsibilities. If you’re eligible for a withholding exemption, we can certainly help you determine that. We can direct you to the proper forms that you will need to file, so that your exemption is properly processed and communicated to the buyer of the property.
Why Did My Property Taxes Go Up?
Most homeowners have to juggle not only their mortgage, but also mortgage insurance premiums, homeowner’s insurance premiums, and property taxes. Generally speaking, all of these items might be included in one easy monthly payment, unless you’ve chosen to separate them. But when something changes, like your property’s assessed value or your taxes due, you will receive a separate notice in the mail.
And that’s when you might notice something strange: According to your county tax assessor, your property taxes have risen this year. Is that correct?
Understanding how property taxes work. To answer this question, it’s important to understand that property taxes aren’t simply based on your home’s actual market value. Property taxes pay for our community services, like schools, fire departments, libraries, police protection, and so on. Even when the real estate market slumps, or your house is aging and needs repairs, the county still needs the same amount of money to operate. In fact, public budgets actually tend to increase over the years.
Understanding how houses are valued. Real estate is actually valued in different ways, according to the purpose of the assessment. When the county assessor comes around to assign a value to your home, he is strictly assigning a taxable value to the property. It might differ significantly from the appraised value, which is determined by a certified appraiser who bases his assessment on the current real estate market. Market value simply refers to what you can actually get for your house on the open market. It’s often close to the appraised value, but can vary according to a variety of factors.
The bottom line is that your taxes are computed based upon your “assessed value”, performed by the county assessor. This value may or may not be in line with your home’s real market value or an appraised value. It is even possible for your taxes to go up when the value of your home says the same or even decreases slightly.
But you’re not stuck with high property taxes. You can appeal your assessed value if you believe your property taxes are unfairly high. In most cases, you will need to submit a property appraisal from a professional, along with certain other evidence depending upon the situation. For more information on appealing your property tax assessment, call us to schedule an appointment.
And there’s one more thing you can do…. Because taxes are based on the county’s budget, pay attention to community politics. On election days, get out there and vote!
Exclusions to Property Tax Reassessments
Don’t you just love paying property taxes? Well, no, no one enjoys that. But we all accept these taxes as a necessary part of living in our beautiful communities. It can become problematic, though, when tax assessors perform reassessments of your property, and decide that your home and land have increased in value. This happens any time property changes hands. You might not care about that if you’re selling your home to a stranger, but it’s a problem if you want to bequeath your property to an heir. Now they owe a hefty tax bill to the county, and it doesn’t always seem very fair.
You might be interested to know that there are sometimes exclusions to property tax reassessments. If your situation allows for the application of one the exclusions, you might be able to avoid a tax hike. However, we should warn you that these are complicated maneuvers, subject to limitations, and require the guidance of a skilled estate planning attorney in order to be sure that you’ve complied with the law.
The parent-child exclusion to avoid reassessment. This exclusion allows you to transfer your principal residence (and up to 1 million dollars’ worth of the full cash value of other real property) to your children, without a reassessment.
The domestic partner exclusion to reassessment. Generally speaking, marriage carries many automatic legal benefits regarding the transfer of property after death. However, if you don’t want to get married, California law does provide some benefits to registered domestic partners. It is possible to transfer your real property to your domestic partner upon your death, without triggering tax reassessment. However, this can be a complicated maneuver, so be sure to discuss it with an estate planning attorney in order to properly protect your loved one.
Transfer to a revocable living trust. If you are not yet ready to transfer your property, and want to make provisions for it after your death, you can place it in a revocable living trust. Upon your death, the property can still be reassessed unless you’ve made plans for a second transfer that qualifies for an exemption.
Transfer to a non-pro rata trust. This type of trust can be more useful if you have more than one child, and want to distribute assets unequally. For example, you might place your real property and some cash in the trust, with one child inheriting the property and another child due to inherit the cash.
If you’re considering one of the above trust options, be aware that certain actions can invalidate your reassessment exclusion. For example, if one of your beneficiaries’ receive beneficial use of the property before your death (such as living on the property or receiving rents from it), your entire exclusion can be invalidated. Many other such subtle nuances in the law exist, so discuss your plans in detail with our estate planning attorney before proceeding with any of the above exclusion actions.
Short-Stay Rentals Might Carry Legal Consequences
It is often said that the Internet changed everything about how we live, work, travel, do business, and more. And once again, we’re seeing that idea played out in the legal arena. This time, it’s short-stay rental agreements (think of websites like Airbnb and VRBO) in the spotlight.
It might seem like a no-brainer: List a room (or the whole house, condo, or apartment) on a website, your renter gets a good deal, you collect a profit, and everyone is happy. But short-stay rentals are actually triggering some surprising consequences for some homeowners, to the extent that consulting a real estate attorney is a good idea before diving into your newest money-making venture.
You could violate your lease. Renting a room on Airbnb, for example, might count as a “sub lease”, which violates the terms of your rental agreement. Doing so could lead to legal action or even eviction.
Your homeowner’s association probably prohibits short-stay rentals. Check your HOA documents before renting out your home, or even just a room, on a short-stay basis. Breaking your HOA agreement can result in fines or even legal action.
Some cities require a business license for short-stay rental management. Many cities and counties are outright banning short-stay rental arrangements, while others require you to have a business license before conducting such transactions. Keep an eye on local politics; even if renting a room on Airbnb is totally legal now, things can change quickly.
You will owe taxes on your profits. Nearly every city and county in California imposes a tax on short-stay, or transient occupancy, rentals. You might be required to register your property, disclose profits, and pay taxes on the money you make from renting out a room or building.
Websites like Airbnb or VRBO can offer a great way to make a little side income, but they continue to pose a legal challenge. If you want to participate in one of these sites, do your homework first. Call our real estate attorney for more information on the specific laws in your area, so that you can avoid any serious repercussions down the road.
New Bill Might Impact Commercial Property Owners
In the past, California landlords and business owners have faced a high risk of being sued for accessibility violations of the Americans with Disabilities Act (ADA). Even though California is home to only 12 percent of the nation’s disabled population, 40 percent of ADA accessibility lawsuits are filed in our state. Were California landlords just that lax about following accessibility regulations? Or did the law allow for a high degree of ADA abuse claims? Some disabled persons made a cottage industry of searching businesses in minute detail for the slightest violation and filing quick strike lawsuits, in essence blackmailing owners for quick settlements.
Last month, Assembly Bill 2093 was approved as an extension of Senate Bill 1186, which was passed in 2012. The original bill required commercial landlords to disclose to prospective tenants their inspection status with a California Certified Access Specialist (CASp). AB 2093 expands upon that rule by specifying additional disclosure requirements.
If a property has been inspected by a CASp and meets current accessibility standards, the landlord must provide the prospective tenant with a copy of the current CASp certificate and inspection report. With tenants assured that the property is in compliance with ADA regulations, a future lawsuit is much less likely.
If the property has not been inspected by a CASp, commercial leasing agreements must state that the owner cannot prevent an inspection if requested by the tenant. The lease should also state that both parties must agree to the time and manner of inspection, payment of related fees, and the cost of making any repairs.
If the property has been inspected by a CASp but was not modified to meet ADA requirements, the landlord must provide the inspection report to the tenant at least 48 hours before the lease is executed. During this 48-hour period, the tenant can decide whether her or she wants to enter into the lease agreement and can negotiate with the landlord regarding any necessary modifications to the property.
AB 2093 also establishes landlord responsibility in the case of renovations required by ADA standards, unless the parties come to another agreement. This part of the bill is designed to encourage both landlords and tenants to deal with accessibility requirements proactively, rather than waiting until after a lawsuit has been filed.
Hopefully, the new bill provides the right incentives for property and business owners to negotiate ADA compliance issues upfront, so that many of these lawsuits can be avoided. With the new law taking effect on January 1, 2017, commercial property owners should contact our real estate attorneys with any questions regarding evaluating or revising their leasing forms.