Lotzar Law Firm P.C.

Legal talent that pays for itself.
480.905.0300 x103 8687 E. Via de Ventura, Suite 115 Scottsdale, Arizona 85258

How Often Do I Have to Re-Certify a Tax Credit Tenant’s Household Income?

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Developers, builders, and investors who use the Low-Income Housing Tax Credit (LIHTC) Program to build affordable housing must meet certain compliance requirements. Each year, the project owner must submit an Annual Owners Certificate of Continuing Compliance Report to the Arizona Department of Housing (ADOH). The annual report is due to ADOH by March 15 each year.  LIHTC buildings must have the number of units occupied by low-income residents that the owner elected to serve (either the 20/50 or the 40/60 tests) when the buildings were placed in service. The purpose of submitting the annual Continuing Compliance Report is to confirm that each building continues to have enough units occupied by low-income individuals and families. money dollar sign

It is important to ensure you remain in compliance with LIHTC requirements to avoid the recapture of LIHTCs. This means you need to re-certify a tax credit tenant’s household income annually. An Arizona lawyer with experience in LIHTCs can provide you with guidance on the re-certification process and can help you to ensure you remain in compliance with all LIHTC requirements. Lotzar Law Firm, P.C. represents many investors and developers with LIHTC projects and we can provide you with the assistance you need to protect your eligibility for ongoing tax credits

When Must You Re-Certify a Tax Credit Tenant’s Household Income for LIHTC Properties

Tenant income must be certified at move in, annually each year thereafter, when household compositions change, or when a unit transfer occurs. The Arizona Department of Housing provides detailed instructions on how to complete tenant income certification.  The annual Tenant Income Certification (TIC) form must be completed by each low-income resident in the building and verifying documentation must always be included with the certification paperwork.

When the income of the residents in a low-income unit increases above the qualifying threshold, the next available unit rule requires that the next rental unit of comparable size or smaller must be rented to residents whose income qualifies.  Further, if a unit in the project becomes vacant that has previously been lived in by a qualifying low-income tenant, that unit or the next comparable unit must also be rented to residents with a qualifying low income.  A unit must be rented to a qualifying low-income tenant before any units are rented to tenants whose incomes are above qualifying levels.  The next available unit rule ensures that the appropriate number of low-income units are available for the building to remain in compliance with LIHTC requirements.

The Arizona Department of Housing must notify the Internal Revenue Service within 45 days of an owner’s non-compliance with LIHTC requirements.  The Department of Housing must file Form 8823 in order to explain the noncompliance and must also indicate whether the owner of the building has corrected the issue.

Do not jeopardize your continued eligibility for LIHTCs if you currently have a qualifying rental building.  Contact Lotzar Law Firm, P.C. today to speak with Arizona tax credit lawyers for help with your LIHTC obligations.

Property Tax Abatement vs. Property Tax Exemptions – GPLET

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All business organizations, developers, and investors within Arizona must take proactive steps to reduce tax liability in order to maximize their Return On Investment (ROI), reduce operating costs, nd enhance profitability of commercial real estate. Minimizing tax liabilities can make a big difference in costs. housing-crisis-1020195-m

Property taxes are one of the most costly taxes for commercial real estate owners, investors, and organizations with their base of operations in Arizona. Lotzar Law Firm, P.C. has extensive experience representing commercial property owners throughout Arizona who wish to reduce property tax liabilities.

Our Scottsdale, Arizona real estate lawyers can provide a comprehensive evaluation of your current tax liabilities and can identify any potential for reductions in property taxes. We can also help with developing a deeper understanding of the important differences between Property Tax Abatement vs. Property Tax Exemptions.  We will work hard to ensure your tax liability is kept to the minimum necessary to remain in full compliance with Arizona state laws.  Call today to speak with a real estate lawyer for assistance in tax planning for your new construction commercial real estate project or for existing commercial real estate.

Understanding the Differences Between Property Tax Abatement vs. Property Tax Exemptions

The difference between Property Tax Abatement vs. Property Tax Exemptions is simple. Exemptions reduce a property’s assessed value. Property tax calculations for both residential and commercial real estate are based on the assessments of the value of the property, which the County Assessor performs on a regular basis. Reducing the assessed value results in a reduction in total tax liability.  Abatements do not involve a reduction in the value of the property. Instead, abatement reduces the amount of taxes owed.

In Arizona, there are numerous ways to reduce property tax liability for commercial enterprises. The Government Property Lease Excise Tax (GPLET), for example, is a program established by Arizona to encourage development through the reduction of operating costs.  The GPLET program works by substituting an excise tax for a real property tax.  The land is conveyed to a government entity and then leased back for use by private enterprise.  The excise tax is based on the gross square footage of the building, and is established based on the type of business being operated.

The excise tax may be substituted for the Property Tax for a period of up to 25 years for GPLET participants.   If the property is within a Redevelopment Area and is located with a Central Business District, the excise tax itself can be abated for a period of up to 8 years after the building’s Certificate of Occupancy is first issued.

Other forms of Property Tax Abatement and Property Tax Exemptions may also be available, including abatements and exemptions for property not owned by and leased from the government.  A developer, investor, or owner of commercial property should speak with a Scottsdale, Arizona business lawyer for help determining what types of Property Tax Exemptions and Property Tax Abatements may be available.

Lotzar Law Firm, P.C. knows federal and state tax rules and can provide your business with comprehensive advice on reduction of all types of tax liabilities. To learn more about the differences between Property Tax Abatement vs. Property Tax Exemptions, call today.

Can You Restructure Your Business Under the Arizona Entity Restructuring Act?

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The Arizona Entity Restructuring Act has streamlined the process of restructuring a business entity.  You can take advantage of the new business-friendly process under five different circumstances. business

Lotzar Law Firm, P.C. can provide you with assistance if you wish to restructure your business under the Arizona Entity Restructuring Act. Our Scottsdale Arizona attorneys can provide guidance on whether restructuring makes sense for your organization and can assist you throughout the new streamlined and cost-effective process of entity restructuring that became effective on January 1, 2015.

How to Restructure Your Business under the Arizona Entity Restructuring Act

You are eligible to restructure your business under the Arizona Entity Restructuring Act if:

  • A merger is occurring: Your organization is combining with one or more additional organizations to form one business.
  • An interest exchange is occurring: Your organization is acquiring a 100 percent ownership interest in another company or your organization is being fully acquired by another entity.
  • A conversion is occurring: Your organization is currently structured as a particular type of entity, such as a Corporation, Partnership, LLC, Individual Trust, or Government Entity, and you wish to convert the organization to another entity type.
  • The organization’s domicile is changing: Your organization is currently domiciled in another state and you wish to change your company’s state of domicile to Arizona.
  • A division is occurring: You wish to split your existing business entity into two or more separate entities.

Prior to the passage of the Arizona Entity Restructuring Act, completing any of these types of restructuring was much more complicated and expensive. For example, changing a domicile would require first forming an Arizona organization, then merging into the newly formed organization.  Division of any entity was also not permissible prior to the change in the law.

Now, the Arizona Entity Restructuring Act has made things much simpler.  The Arizona Entity Restructuring Act not only established a streamlined process for each of these different types of restructuring, but it also made it possible to combine them.  For example, a company could both convert its type of business structure and assume an interest in another organization, or could convert its structure and domesticate by changing its domicile to an Arizona entity.

In order to complete the necessary restructuring, your organization will need to follow the initial governing documents that were created by your company. This typically means obtaining a majority vote of shareholders affirming that the restructuring is appropriate. If there are dissenters who do not vote in favor of the restructuring, it will also be necessary to comply with any statutes related to dissenter’s rights.  If you are relocating from another jurisdiction, you will also be required to follow the laws of the state where your business was formed.

Lotzar Law Firm, P.C. can make the process of restructuring easier because our Scottsdale Arizona business lawyers have an in-depth understanding of how the Arizona Entity Restructuring Act applies to your organization.  Call today to schedule a consultation and learn more about how to restructure your business by taking advantage of Arizona Entity Restructuring Act provisions.

Free Report: What Is the Low-Income Housing Tax Credit in Arizona (LIHTC)?

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What is the low–income housing tax credit program in arizona

The Low-Income Housing Tax Credit Program (LIHTC) is a federal tax credit program that was created by the Tax Reform Act of 1986. Details about the Low-Income Housing Tax Credit Program (LIHTC) can be found in the Internal Revenue Code (IRC), Section 42.

Although the program exists on the federal level, the individual states have authority to make determinations about which developers will become eligible to receive these important tax incentives. Pursuant to the IRC, a Qualified Allocation Plan (QAP) is prepared annually. In the state of Arizona, the Arizona Department of Housing prepares this plan, which is approved by the governor.

Developers who qualify for the LIHTC can receive significant tax benefits when developing qualified housing projects. Developers need to understand the requirements and complete a comprehensive application demonstrating that they should qualify for the federal tax incentives.

Click here to read the whole report or download the PDF.

Mechanic’s Liens in Arizona

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What Is a Mechanic's Lien? Property owners in Arizona need to understand what a Mechanic’s Lien (alternately referred to as a Construction Lien) is and how it works.  A Mechanic’s Lien filed against your property can be a serious problem if not addressed quickly.  The basics of a Mechanic’s Lien are simple and straightforward.

To explain by way of example, let’s say that you own a commercial building outright, and you decide to hire a contractor to make improvements. You enter into a contract with this one entity, and you agree to pay a certain amount for the work.

Behind the scenes, the contractor will work with subcontractors, suppliers, and consultants. The contractor has an obligation to pay its subcontractors and suppliers, just as the owner is obligated to pay the contractor.  Sometimes, however, the contractor fails to do so.

The owner’s payment to the contractor for the work commissioned satisfies the owner’s legal responsibilities to the contractor, but a Mechanic’s Lien can muddy the waters.

A Mechanic’s Lien exists to make sure that the subcontractors and suppliers get paid, regardless of whether the owner has already paid the general contractor for those services or supplies. Under Arizona state law, the subcontractors, suppliers, and consultants could file a Mechanic’s Lien against the property that was improved. The property owner could be held liable for the contractor’s unpaid debts. The property owner can then look to sue the contractor to recover the amounts paid directly to the subcontractors and suppliers.

There are other cases that involve property owners or developers who do not uphold their contractual obligations to contractors. Under these circumstances, a contractor could file for a Mechanic’s Lien.

It is easy to understand these relatively simple scenarios. However, things get a bit more complicated when you consider the fact that most property is not owned outright. Lenders who hold liens are going to enter the picture.

Equitable Subrogation

Before a 2013 Court of Appeals ruling, Arizona state law sided with lenders over contractors or subcontractors in these cases. The property in question could not be subject to a Mechanic’s Lien. The Lender’s Lien would take precedence.

The Court of Appeals in Weitz Co., LLC v. Heith used an alternative interpretation of the “equitable subrogation” doctrine to change the playing field. Mechanic’s Liens were given the priority.

However, last year, the Arizona Supreme Court Weitz Co., LLC v. Heth reversed the Court of Appeals’ decision. The status quo has been reestablished, and lenders, including subsequent lenders, once again hold the superior position.

This is an issue that has been hard fought over the years, but after the Supreme Court ruling, the matter may have been put to rest for good.

Contact Us to Schedule Your Free Consultation

If you have questions about legal issues that are relevant to commercial or residential real estate development, call us at (480) 905-0300 x103, or message us through our online contact form to schedule a free consultation with one of our Scottsdale attorneys.

Materialmen’s Liens in Arizona: What Property Owners Need to Know

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Materialmen’s Liens in Arizona: What Property Owners Need to Know

In Arizona, contractors or suppliers involved in construction projects may place liens on the work property or on the supplied materials. These Materialmen’s Liens were designed to promote the development of property and they exist to protect contractors from nonpayment.  Property owners who fail to take appropriate steps to protect their interests over the course of construction run the risk of being responsible for double payment for a subcontractor’s materials and labor.

While court decisions and other documents often refer to lien “rights,” Arizona does not have a common law right to Materialmen’s Liens for construction projects; rather, a lien in these cases is a remedy created by statute that gives contractors or suppliers an interest in the owner’s property and the right to sell that interest to satisfy unpaid labor and material costs.

Which contractors or suppliers are eligible for a Materialmen’s Lien?

In Arizona, a Materialmen’s Lien may be claimed by any contractor or supplier who provides labor, materials, machinery, tools, fixtures, or other professional services in the construction, repair or structural improvement of a building. A Materialmen’s Lien in Arizona can apply only to private construction projects, however. A subcontractor cannot record a Materialmen’s Lien against projects on government-owned property or public construction projects such as infrastructure or schools.

Subcontractors and material suppliers do have Materialmen’s Lien rights, as entities that supply labor or materials on the project. Property owners and business owners have specific steps that they must take to protect their property interests from the Materialmen’s Lien rights of these suppliers.

Any contractor, subcontractor, or material supplier must be properly licensed to exercise any Materialmen’s Lien rights.

What is the lien process?

In order to record a Materialmen’s Lien, contractors or suppliers must follow specific steps. Property and business owners should consult with an attorney not only to ensure that contractors follow these procedures and are able to document each step, but also to ensure that the property or business owner takes the steps necessary to protect his or her own interest in the Materialmen’s Lien process. Proper planning and execution should help the property owner avoid becoming involved in a legal dispute over a Materialmen’s Lien.

Lien-eligible contractors or suppliers must provide the owner with a preliminary 20-day Notice, which must include the amount the contractor or supplier anticipates will be necessary for the job for the period covered by the notice. The preliminary 20-day Notice serves as a notice that the contractor may choose to file a lien on the property if they are not paid according to their contract.

The deadline for a contractor to record a lien is 120 days from the close of their particular portion of the construction project. Property owners may file a “Notice of Completion” with their county recorder’s office and serve contractors with the notice, which informs them that the entire project has been completed, and alters the timeline for contractors to record a lien on the project.

Business and property owners should consult with an experienced commercial real estate attorney to understand how Materialmen’s Liens in Arizona work. If you have questions regarding a Materialmen’s Lien, have received a preliminary 20-day Notice or are involved in another stage of the lien process with a contractor or supplier, please contact the Lotzar Law Firm, P.C., at (480) 905-0300 x103 or get in touch using our online contact form today.

What is the General Process for Obtaining a Low-Income Housing Tax-Credit (LIHTC) Award?

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Low-Income Housing Tax-Credits (LIHTC) can reduce the cost of development for properties that allocate a certain amount of funds to residents with incomes below area medians.  To be eligible for LIHTCs, 20 percent of units must be occupied by households with incomes at or below 50 percent of area median income or 40 percent of units must be occupied by households with income at or below 60 percent of median income. The Department of Housing and Urban Development determines median income based on household size. Units must be rent restricted. housing tax credits

LIHTCs can reduce tax liability dollar-for-dollar. Lotzar Law Firm, P.C. can help you to apply for Tax-Credits. Call today to schedule a consultation and learn more about how we can represent you throughout the process for obtaining a Low-Income Housing Tax-Credit Award.

Arizona established the process for obtaining a Low-Income Housing Tax-Credit Award within the state. The Arizona Department of Housing oversees the process and has authority to allocate credits to any developers or projects that meet minimum federal guidelines.

What is the Process for Obtaining a Low-Income Housing Tax-Credit (LIHTC) Award?

 

The process for obtaining a Low-Income Housing Tax-Credit Award begins by submitting a hard copy and a CD of the complicated application. The application must contain exhibits and forms including but not limited to:

  • Site amenities supporting documentation
  • A legal Opinion and an Opinion from a CPA
  • A Project Cost Form
  • A Market Demand Study Guide
  • A Supportive Services Plan
  • A schedule for the project
  • A Self-Score Sheet
  • Certification of qualified non-profit participation
  • Forms detailing development experience and development team experience
  • A schedule of real estate that is owned
  • Planning and zoning verification
  • A Certificate from an architect
  • A Sustainable Development Checklist

Lotzar Law Firm, P.C. will assist in completing and assembling all required forms and exhibits that must be submitted as part of the process for obtaining a Low-Income Housing Tax-Credit Award. Applications must meet specific requirements including providing materials in a binder, indexed and tabbed and in 8-1/2 x 11 format. A non-refundable Application Fee of $5,000 must be submitted with the Application. If GAP financing is required, a GAP financing fee must also be paid with a completed application for LIHTCs.

The Developer, Co-Developer or Consultant must include certification that an LIHTC Application Workshop had been attended over the course of the year. Proof that the Developer, Co-Developer or Consultant attended Compliance Training within the past five years is also necessary as part of a successful application.

The Arizona Department of Housing uses a competitive review process to award Low-Income Housing Tax-Credits. Regardless of scope, applications for housing development projects are denied if they do not meet LIHTC guidelines.

Lotzar Law Firm, P.C. will assist in ensuring that you meet all guidelines and that you submit a comprehensive application for consideration. Call today to schedule a consultation and learn more about how our Scottsdale Arizona real estate development lawyers can help you.

Benefits of Financing an Apartment Complex with Low-Income Housing Tax-Credits (LIHTC)

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Low-Income Housing Tax-Credits (LIHTC) encourage the investment of private equity in the development of low income housing. All stakeholders involved in the development of low-income housing benefit from obtaining credits. LIHTC tax credits

Lotzar Law Firm, P.C. helps developers qualify their project for Low-Income Housing Tax-Credits. Those interested in financing an apartment complex with Low-Income Housing Tax Credits should contact our experienced Scottsdale, Arizona real estate development lawyers as soon as possible. Our attorneys have in-depth knowledge of federal guidelines and Arizona qualifying criteria and will work hard to help you get tax credits.

Benefits of Financing An Apartment Complex with Low Income Housing Tax Credits

Developers benefit from cost-savings when financing an apartment complex with Low-Income Housing Tax-Credits.  Developers can sell tax credits to investors to raise equity, reducing debts. Affiliated parties can serve as owner’s representatives; general contractors and property managers.

Tax Credits can be claimed annually over a 10-year period of time. Credits provide a dollar-per-dollar reduction on tax liability.  The developers fee may be included in the eligible basis and developers may qualify for incentive management fees.

When financing an apartment complex with Low-Income Housing Tax-Credits, general contractors also benefit.  For apartments with under 15 units, builder’s profit is set at a maximum of five percent. For apartments with more than 61 units, contractor or builder’s profit is set at five percent.  Contractor costs are included in the eligible basis for tax credits.

Although land is not included in the eligible basis for tax-credits and land purchases are not depreciable, sellers of land to be used for an apartment complex financed with tax credits also benefit. Land sellers can often command a premium for patience during the transaction process. Sellers can be affiliated with the developer, provided the land is sold at fair market value and the investment partner consents.

Property managers, asset equity providers, construction lenders, architects and engineers also benefit when financing an apartment complex with Low-Income Housing Tax-Credits.

  • Asset equity providers may be eligible for tax credits and tax credit adjusters. Asset equity providers can also declare losses during construction and lease up periods. Asset equity partners should expect due diligence fees generally totaling $25,000; legal fees often totaling $25,000; and asset management fees often totaling $5,000.
  • Construction lenders and permanent lenders may assess origination fees up to two percent of the loan. The LIHTC follow the land owner if there is a foreclosure, and the LIHTC can be terminated after foreclosure following a three-year transition period. The property can then be operated as a market rate property.
  • Architects and engineers will have their fees included in the eligible basis for tax credits.

These are just some of the advantages of financing an apartment complex with Low-Income Housing Tax-Credits. Lotzar Law Firm, P.C. represents clients qualifying for LIHTC and can provide guidance in determining whether to qualify. Our attorneys also provide assistance with completing the application process. Lotzar Law Firm, P.C. also assists developers and investors in exploring other opportunities for tax credits and tax-advantaged financing of construction projects. Call today to schedule a consultation and learn more about the legal services available.

Free Report: General Process for Obtaining Low-Income House Tax Credit in Arizona

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low-income housing tax credit in arizona

Low-Income Housing Tax-Credits provide a dollar-for-dollar federal tax credit to reduce tax liability for developers and investors. LIHTCs are available to encourage investment in the development of low income housing developments. Credits are available for new construction and substantial rehabilitation/remodeling.

There are strict requirements for obtaining LIHTCs. An experienced attorney can represent nonprofit and for profit developers, as well as housing bond issuers. Attorneys will assist in negotiating financing; structuring transactions; managing LIHTC portfolios and complying with requirements to maximize LIHTC investor equity.  Involve an attorney early in the process of obtaining low-income housing tax credits.

Click here to read the whole report or download the PDF.

Free Report: Process For Issuing Private Activity Bonds in Arizona

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General Process for Issuing Private Activity Bonds

Private Activity Bonds are municipal securities. Proceeds from Private Activity Bonds are used to cover construction costs for qualifying products, including utility facilities, docks and airports, and low-income rental properties.

Developers, nonprofits, manufacturers and other business owners benefit from Private Activity Bonds (PABs). An experienced attorney can assist in understanding minimum qualifications requirements and in following the process for obtaining Private Activity Bonds. Attorneys can serve as counsel for borrowers and issuers, or may serve as Bond Counsel. Attorneys can also help structure transactions so bond proceeds can be put towards the cost of issuance.

Click here to read the whole report or download the PDF.

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