Rental Properties Alert

This is to advise you of a new Arizona law effective on 01/01/12 that is addressed at property owners who are renting out residential property but not properly classifying the residence as a rental with the appropriate County Assessor.  With the next mailing of valuation notices to property owners [usually in February], there will be an affidavit attached requiring property owners to (i) attest that they or a family member are occupying the property as their primary residence and  (ii) return the affidavit to the county.  If the affidavit is not filed within 60 days, the property will be classified as a rental property and the property taxes could increase. This procedure will be repeated every other even-numbered year.

When a property is used as a rental, the county requires that this be reported so that the property can be reclassified and taxed at the proper rate.  This isn’t new.  However, many property owners either do not know this or choose to ignore it.  The county has never been aggressive in ensuring compliance with this requirement. However, now additional revenue is needed and this is an already-in-place avenue to increase revenue.  The new law and affidavit process, however, sets the property owner up for not only the tax increase but fines and possible legal action for not reporting properly.

So, please be alert to this change so you won’t get hit with an unexpected tax increase by ignoring the affidavit. Investors should be alert to the stepped-up penalty for not classifying their rentals properly with the applicable county. This year effectively gives investors one last chance to properly report before auditors begin investigating. Investors should also be alerted to the requirement to be licensed and pay city sales taxes on their rentals. You can also expect cities to become more aggressive in collecting this sales tax.

Written by Attorney Irving Hymson,

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