Letter from the PresidentWe have a big election coming up and if you don’t know by now, the hot issue is Home Rule. The question of “Should the City of Rockford have Home Rule or Not” will be on the ballot March 20th. This has proven to be a contentious issue between proponents and opponents. There is one big reason among the many others that the Rockford Apartment Association has chosen to oppose Home Rule. Simply put, if the City of Rockford obtains home Rule status Landlords could be licensed! We have been faced with this threat for years. I want to thank all of our members who provided sign loca-tions to help fight this latest threat. Even though there has been little or no mention of it, if Home rule passes, licensing will eventually become a reality. What would licensing mean to Landlords and what would it mean to tenants? Usually Licensing comes with a per unit fee, and then there can be individual unit inspections which occur on an annual basis with a cost associated with each inspection. Any of you have that have taken part in the Section 8 housing voucher program have a good idea of what it would be like. It would be an onerous task requiring time and money complying with inspections. We can try to pass those costs on to tenants but that will prove to be difficult thing in the short term as market rents will prevent pass-ing along those costs immediately. Eventually though, it will trickle down and the ones who have the least will be paying the most. Many renters today live paycheck to paycheck, and as all landlords know when they have a car breakdown, or medical bills, and or any other unexpected expenses they have trouble paying their rent. Imagine you’re working a service sector job making $10 per hour raising one or two children and now rents are going up because our government

March MeetingTuesday, March 20, 2018

JOIN THE RAA! Members enjoy . . .

✔ 7 monthly meetings with guest speakers covering a variety of property management topics

✔ Winter Member Mixer

✔ Spring Banquet

✔ A Web link or page advertising your units on the RAA Web site

✔ Member Networking through group Email

✔ Knowledge of State and local political issues affecting property managers and owners

✔ Monthly newsletter

A one-year membership is $99.

To join or e-mail RAA, go to www.rockfordapartmentassociation.org

1-800-RAA-6676

RAAR 6776 East State StreetRockford, IL 61108

Meeting Location

Follow RAA on Facebook!

continued on page 2

Tax Laws Speaker: CPA David Lindgren with Wipfli LLP CPA’s

Join us as David discusses the many aspects of tax laws and how they are used in the real estate investment world.

He will be discussing things like deductible expenses, capital gains from a sale, depreciation, expensing vs

capitalizing, 1031 tax deferred like kind exchanges( also known as the Starker exchange), and finally new 2018 tax

law changes and how they will impact you!

Cost: FREE for members, $15.00 for non-members Networking 6:30 P.M.

General Meeting 7:00 P.M.

RAA rental forms for members onlyForms are available at the following locations. Please call in advance to be sure someone will be available to help you.

During General Meetings

Asset Protection Insurance 124 North Water St., Suite 208 1-815-708-7445

Come to a meeting!

Every 3rd Tuesday September through May Join and save! Free to RAA members $15 non-members

Meeting Location

Rockford Area Association Of Realtors 6776 East State Street Rockford, IL

March 2018 Rockford Apartment Association Page 2

I would describe myself as grateful, hard-working and entrepreneurial. I’m often shy at first, but easy to connect with afterwords.

My hobbies include reading, playing basketball & skiing. I picked up skiing after an impromptu trip to Telluride, Colorado with a group of college buddies and have been hooked ever since! Other hobbies include hiking, connecting with close friends and family, and working out. I recently started flipping goods on eBay. My travel plans for the year include a bachelor party in Louisville and a hiking trip to Crater Lake.

I would like people to know that I try to improve many facets of my life on a continual basis, be it emotional, spiritual, physical or financial.

I decided to become a landlord when two life long friends and fra-ternity brothers introduced me to real estate investing my senior year of college. After I moved back to Rockford in March, 2016, I knew I

needs more tax dollars. Proponents will argue there are merits to Home Rule, but even if that is true, the bad far outweigh the good for Landlords and tenants. If Home rule is approved by voters March 20th a few will be asked to pick up the bill for the city’s financial crisis. Continual taxing steadily erodes at the standard of living for all but the poor and those with the least are hit the hardest. Please vote No to Home Rule March 20th!!

Our next meeting coming up also on March 20th will be on Tax Laws. Join us as speaker David Lindgren “Certified Public Accountant” with Wipfli LLP CPA’s will be covering the many aspects of tax laws concerning Real Estate investors. He will be discussing things like investment income treatment, capital gains on sales, 1031 tax deferred exchanges, allowable expenses, expensing vs capitalizing, depreciation, record keeping, home office expense, etc. He will also cover the new 2018 tax law changes. This is a timely event as April 15th is coming fast. This year the IRS will extend the deadline until Tuesday April 17th. Come and bring your questions for David.

Thanks, and hope to see you all there!—Karl Fauerbach, RAA President

As I read through this interview I see a leader. I see someone with a lot of common sense who is headed in the right direction, has clear goals in mind, and the intellegence and ambition to make them happen. What great gifts to have when young and starting out. If we could fast-forward ten years, I am sure we would find a very stable, established, suc-cessful entrepreneur. We are very blessed to have him in the RAA.

Meet Alex Johansson by Jerri Cole

continued on page 3

March 2018 Rockford Apartment Association Page 3

Nick VerstraeteNick@Eckburg.com

815-877-4100

eckburg.com

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wanted to dive into real estate investing. I purchased my first property December 1st, 2016, and became a landlord in February 2017, when I started rent-ing out one half of a duplex I occupied at the time. Starting October 1st, I started renting out the other half after I moved into the Edgewater neighborhood. Luckily, I was fortunate enough to discover the RAA which has helped me navigate the dos and don’ts of landlording.

What I like best about landlording is providing a high quality home at a fair price. I take pride in displaying my well-maintained property to friends and family.

What I like least about lanlording is dealing with tenants’ sense of entitlement and handling situations when tenants break rules.

I don’t have any strange or funny stories to tell about my experiences yet—just your typical share of landlord experiences.

Some of the clubs and organizations I am in-volved with are:

- Toast Masters: an organization dedicated to helping members improve their communication, public speaking and leadership.

- Rockford Area Illini Club

- Project 505 Volunteer: Project 505 is an initia-tive by the YMCA to inspire and develop 505 local teens into community leaders and maturity through mentorship.

- An active athlete at CrossFit VisOne.

My pet peeves are general laziness and those un-interested in improving their overall well being.

I would like to see Rockford say “No” to Home Rule and create a more business friendly environ-ment to help alleviate the property tax burden.

My best advice to new landlords is to build the self-awareness and emotiomal intelligence to know when to pick your battles with tenants.

If I could change anything it would be to instill more kindness in the world and to teach others to trade expectation for appreciation!

Wife: “Why don’t you wear your wedding ring?”

Husband: “It cuts off my circulation.”

Wife: “It’s supposed to.”

March 2018 Rockford Apartment Association Page 4

Ken BeckerBroker - GRI, CRS, CRBClosed Over 100 Million Dollars

1720 Rural St. • Rockford, IL 61107

E-Mail: KBecker39@aol.com

Residential Investments Commercial Office (815) 399-8000Eves. (815) 226-4800Cell. (815) 670-3300Fax (815) 399-7733

REALTORS®

BeckerPresident Donald Trump signed the GOP tax bill into law on December 22, 2017. News has speculated how the new legislation impacts rental properties and invest-ments in real estate.

Brandon Hall, the founder and CEO at The Real Estate CPA, breaks down the actual details for us. This article is for real estate investors, landlords, and property managers on the new tax bill.

IMPACT ON RENTALS AND REAL ESTATERental Income: No Change to Self-Employment Tax RulesThis earlier clause from the House bill was considered a mistake. Rental income is not subject to self-employment taxes. Landlords are not required to pay an additional 15.3 percent in taxes on their net rental income.

Pass-Through Deduction: Added a New Freebie DeductionThe pass-through deduction will truly benefit landlords. It is a calculation after AGI (adjusted gross income) and is given to sole proprietors, LLCs, and S-Corps generating qualified business income. For partners in a business, the deduction is based on your specific ownership.

Brandon has provided the exact calculation below, where you can run your own scenario. In general, rental properties with net income after amortization and depreciation will receive a 20 percent deduction on net income or a 2.5 percent deduction on your property’s unadjusted basis (which does not include the value of the land). The 20 percent deduction appears to be on the total rental income for your business portfolio, but it is applied on a business-by-business basis. The deduc-tion is calculated as follows:

New Tax Bill’s Impact on Land-lords & Real Estate Investors http://resources.hemlane.com/new-trump-tax-plan-real-estate/

by HEMLANE

continued on page 5

March 2018 Rockford Apartment Association Page 5

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*Combined qualified business income is calculated as follows:

Note that this deduction does not apply to service busi-nesses, unless the taxpayers who own the service busi-nesses have total taxable income less than $157,500 if single or $315,000 if married filing joint. If this is the case, then they receive a 20% deduction on combined qualified business income. A service business is defined as “any trade or business where the principal asset is the reputation or skill,” excluding engineers and architects.

Domestic Production Activity Deduction (DPAD): EliminatedThe DPAD was a deduction based on wages paid through the ordinary course of business. Flippers, developers, and builders cannot take advantage of the DPAD any longer. However, you can use the new pass-through deduction above to counter the elimination of DPAD.

Itemized Deductions: No Change on Rentals but Change for Primary and Secondary ResidencesRental property owners can still deduct business expenses from the rental properties, and there is no change here.

Primary and secondary residences have the largest im-pact. Beginning December 15, 2017, owners can deduct mortgage interest on the initial $750,000 of a newly ac-quired debt. But unless the proceeds are used to purchase or improve rental properties, home equity debt cannot be deducted. A property owner cannot deduct the interest on home equity debt, refinancing, or HELOCs (home eq-uity line of credit). If the residence is in a higher income state, the limit is most likely to be exceeded as State and local income and property tax deductions are limited to $10,000 annually.

While an owner can still allocate tax preparation fees to Schedule C and E, tax preparation fees and unreim-bursed employee expenses cannot be claimed as miscel-laneous itemized deductions.

continued on page 6

March 2018 Rockford Apartment Association Page 6

Property Depreciation: No ChangeWhile there was a proposal to reduce the useful life of residential and commercial property to 25 years, there is no change to property depreciation in this bill. The useful life of residential rentals and commercial property is 27.5 and 39 years respectfully.

Bonus Depreciation: Change for Assets with Less than 20 YearsThe useful life of a rental property is listed at 27.5 years. Beginning September 29. 2017, assets with a useful life of less than 20 years will qualify to be 100% expensed through bonus depreciation. Examples within a property include:

Appliances Computers and software

Carpet Equipment and tools

Land improvements (landscaping, driveways)

While you cannot 100% expense a rental property, due to a higher useful life, you can expense these assets within and on the property.

What is Bonus Depreciation? Since this is bonus depre-ciation, you pay depreciation recapture tax when you sell the asset. In other words, you have to pay it back some-day, even if you are not paying the taxes on it today.

Rehabilitation Tax Credit: Eliminated 10 % CreditFor real estate investors who are developing older buildings, the 10 percent credit for pre-1936 buildings has been elim-inated. It is only available for certified historic structures, where a 20 percent credit is applied.

1031 Exchange: Changed to Only Allow Real PropertyThe 1031 exchange allows real estate investors to exchange a property for a “like-kind” property without paying taxes immediately on the gain. The tax is deferred until the last “like-kind” property is sold.

The good news is that real estate investors you can still leverage the 1031 exchanges. The bad news is that it can only be applied to real property. For those who perform a cost segregation study, where personal property com-ponents are depreciated over a shorter time, it is unclear whether or not the personal property components with-in the study are still eligible to be included in the 1031 exchange.

Section 179: Doubled in Amount and Available to Commercial OwnersSection 179 allows the write off the cost of certain property. The total amount that can be expensed has doubled, from $500 thousand to $1 million. For commercial and some

short-term rental owners, their non-residential proper-ties can take advantage of Section 179 for fire systems, security systems, roofs, and HVACs. For NNN property and AirBnB, many of these will qualify for immediate expensing of large improvements.

Section 121 Exclusion: No ChangeSection 121 allows an owner to exclude a certain amount on the capital gains on the sale of a primary residence. This amount is $250,000 for single taxpay-ers and $500,000 for married filing jointly, with the provision that the owner must live in the residence for the past two of five years. The length was proposed to be changed to the past five of eight years, but this proposal did not pass.

Lifetime Gift Exclusion: DoublesThe lifetime gift exclusion is the amount of wealth that you can pass onto someone else, tax-free. The change benefits those with large estates, as the lifetime gift exclusion has doubled from $5 million to $10 million per person.

It is important to note that this is the lifetime gift exclusion. The annual gift limit remains at $14,000, where any amount over it must be report a gift tax re-turn of any amount of that, which is reduced from the lifetime exclusion.

OTHER IMPORTANT TAX PLAN CHANGESTax Brackets: RevisedHere are the new income tax brackets:

Standard Deduction: Nearly Doubles but Person-al Exemptions are EliminatedSingle and married taxpayers can claim $12,000 and $24,000, respectively. This is nearly double the existing standard deduction. These changes will make it where the majority of taxpayers will not opt to itemize their deductions.

continued on page 7

March 2018 Rockford Apartment Association Page 7

Historically, taxpayers could take a personal exemp-tion deduction of $4,050 per person on the tax return. This personal exemption has been eliminated and will be a disadvantage to those with multiple dependents.

529 Plans: Expanded for Education529 plans can now be used to pay for private, public, and religious elementary and secondary schools. In addition, you can use these plans towards qualified education expenses.

Alternative Minimum Tax (AMT): Exemption Amounts IncreasedWhile there was discussion of eliminating the AMT, it did not go through. Exemption amounts increased to $109,400 for married filing jointly and $70,300 for all other taxpayers. The phaseout thresholds, indexed for inflation, increased to $1,000,000 for married taxpayers filing a joint return, and $500,000 for other taxpayers.

Obamacare: Eliminated Penalty for Non-enrollmentObamacare had a penalty for those who opted to not enroll in healthcare. Effective in 2019, individuals can

select to not enroll in health insurance. Healthcare pre-miums are expected to increase as healthier folks will be less likely to enroll in health insurance.

C-Corporations: Reduced Tax RateC-Corporations will have a tax rate of 21 percent, pro-viding over $1 Trillion in money back to large compa-nies. While most real estate investors have their prop-erties in LLCs, they may be affected, depending on how the corporations choose to use their savings.

For most of the tax bill changes, they are effective from January 1, 2018 to 2025.

For the length of the bill, nearly 1,000 pages of text, the implementation process was incredibly fast. It took seven weeks from development to ink on the paper for a $1.456 trillion tax bill. Compare this to the Tax Reform Act of 1986, which took nearly two years. The speed that this bill went through legislative leaves ques-tions on whether there is opportunity for loopholes. The extent to which loopholes could exist will not be known until someone analyzes and reviews corner cases in more detail.

5812 East Drive Loves Park, Il 61111 815-877-8500 www.WeichertTovar.com

https://www.facebook.com/weicherttovarproperties

March 2018 Rockford Apartment Association Page 8

Complete Blacktop Services

815-637-6524Fax# (815) 654-9650Trickieent@aol.com

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Rental Expenseshttps://www.irs.gov/taxtopics/tc414

Examples of expenses that you may deduct from your total rental income include:

Depreciation – Allowances for exhaustion, wear and tear (including obsolescence) of property. You begin to depreciate your rental property when you place it in service. You can recover some or all of your original acquisition cost and the cost of improve-ments by using Form 4562.pdf, Depreciation and Amortization, (to report depreciation) beginning in the year your rental property is first placed in service, and beginning in any year you make improvements or add furnishings.

Repair Costs – Expenses to keep your property in good working condition but that don't add to the value of the property.

Operating Expenses – Other expenses necessary for the operation of the rental property, such as the salaries of employees or fees charged by independent contractors (groundkeepers, bookkeepers, accoun-tants, attorneys, etc.) for services provided.

A murder suspect was holed up in his house, sur-ronded by armed police officers. With no end to the siege in sight, the officer in charge yelled: “Come on out, or I’ll come in there and drag you out!”

The suspect shouted back: “I’m warning you. If you don’t wipe your feet when you come in, my wife will kill us both!!”

March 2018 Rockford Apartment Association Page 9

N E W S & T I P S F O R T H ER O C K F O R D A R E A R E A L T O R ®

M A R C H 2 0 1 8

HOME RULE

HOTSHEET

The Illinois Constitution allows both counties and municipalities to obtain home rule status. Of the 191 home rule referendums that have appeared on ballots in Illinois between 1970 and 2000, 97 have passed and 94 have failed.

The Illinois Constitution allows a home rule city to “exercise any power and perform any function pertaining to its government and affairs.” Meaning

that the constitutional, legislative, and local constraints on home rule cities are minimal.

Home rule cities are able to regulate and impose taxes in any way they see fit to solve local issues. However such an arrangement is rife with potential for misuse of power, with excessive taxation and overbearing regulatory authority often the result.

WHAT IS HOME RULE?

After taking a deep dive into the numbers (‘Respective County Clerk/Supervisor of Assessments, Published Municipal Bud-gets, and Local Media Reports’), Rockford Area Realtors® rec-ommend a 'no' vote on home rule — in favor of better proven, more practical ways to reign in spending and solve budget deficits. Key reasons for the 'no' vote include:

Home rule taxes hurt working and low-income families hardest. Home rule allows cities to borrow as much as they want and tax as much as they want, all without direct voter input. This means higher costs for residents, especially senior citizens and middle- to low-income households.

Home rule cities across Illinois have suffered from risky ventures. A study by the Chicago Tribune found that home rule cities frequently go deeply into debt: "[Home rule] power can be used to benefit the politically connected, nearly bankrupt towns and saddle a generation with IOUs for which they had no direct say."

Illinois' home rule lacks fundamental checks and balances. The Tribune also found that residents have little chance to review new tax plans.

Home rule taxation possibilities are virtually endless. Home rule city governments can enact an unlimited number of taxes, all without voter approval, including gasoline, sales and local business taxes.

In the press conference announcing their stance on home rule, Rockford Area Realtors® also made the point that a vote for home rule won't change Rockford's tax or regulatory obligations to the State of Illinois. Home rule taxes and regulations do not replace State taxes and regulations, but add to them.

ROCKFORD AREA REALTORS RECOMMEND 'NO' VOTE ON HOME RULE

WHAT ARE THE MOST COMMONLY EMPLOYED HOME RULE TAXES?

TWO ADDED STICKING POINTS ABOUT HOME RULE LEGISLATIONThere are two additional ‘sticking points’ about the home rule legislation that concern Realtors®.

“A vote for home rule doesn’t release Rockford from Springfield’s authority,” commented Conor Brown, Governmental Affairs Director, Rockford Area Realtors®, “home rule cities cannot escape state regulations. They just add to it.”

Another concern is the lack of a concrete plan to reduce Rockford property taxes.

“The main tax issue facing Rockford residents is property taxes,” Brown said. “There is no real plan to reduce property taxes. Even if there was a plan to lower property taxes, there is no guarantee that the plan would ever be realized. We have seen too many home rule governments across the state increase property taxes.”

Steve Bois, CEO, Rockford Area Realtors®, said that the Association’s “deep dive” into reviewing Home Rule communities across the state clearly showed Realtors® that “home rule communities do not work better.”

Bois added, “We want Rockford to be an attractive place for businesses and residents to live, grow and prosper. Unfortunately, the research shows home rule runs counter to that ideal.”

Home rule cities typically seek to transfer local tax burdens from residents onto non-residents of the community. Anything can be taxed that is not income, occupations or earnings — without the need for voter approval. Here's a list of the most commonly enacted home rule taxes.

Municipal Retailers and Service Occupation Taxes. Basically, an added sales tax (passed concurrently at .25% increments with no maximum limit). For example, Joliet charges a 1.75% home rule added sales tax, which would the equivalent of Rockford having a total 10% sales tax.

The Hotel/Motel Tax. The revenue from a home rule hotel/motel tax may be applied to any public purpose while a non-home rule hotel/motel tax can only be used to promote overnight tourism and is limited by a 5% cap. Peoria has the highest cumulative hotel/motel tax rate in the state at 19%.

Gasoline Tax. An added tax on top of the federal tax of 18.4 cents/gallon and the state tax of 19 cents/gallon (plus the state 6.25% sales tax). Peoria and Elgin just raised their gasoline taxes.

Property Use Tax. A tax on all tangible property that is registered with the State, such as new or used cars, boats or other vehicles. Chicago charges an added 9.5% tax on tangible property, Cook County an added 8.25%. This would be a new tax for Rockford residents.

Property Taxes. While imposed by both home rule and non-home rule cities, non-home rule cities can only extend property taxes 5% (or the rate of inflation, whichever is less). There is no cap for home rule cities. Waukegan, a home rule city, has seen it’s property tax levy go up over 100% in the last 12 years.

Real Estate Transfer Tax. Tax charged when you sell your home. This tax has ranged anywhere from $2 to $10 per thousand dollar home value across different home rule communities in Illinois.

Food and Beverage Tax. A tax above and beyond the regular sales tax. Right now Springfield is considering a $5 million tax home on food and beverages.

Amusement Tax. A tax on musical and theater events, as well as streaming services like Netflix and Spotify. Chicagoans now pay a 5% amusement tax, with the city considering raising this tax to 9%.

Other potential real estate taxes include teardown taxes, mandatory rental inspections, landlord licensing, vacate property registrations, fire sprinkler retrofits, tenant taxes, renting taxes (commercial, industrial, retail), high impact fees and transition fees. The list is almost endless.

®

From 2006 to 2017, the largest home rule cities outside Chicago saw a double digit increase in their property tax levy, compared to just an 8% increase in Rockford. Waukegan saw a 120% increase, Springfield +48%, Peoria +46%, Elgin +44%, Joliet +30%, Aurora +30%, Champaign +27% and Naperville +20%.

In their 'no' vote recommendation on the home rule referendum on March 20th, Rockford Area Realtors® cited escalating property taxes as their primary concern. Proponents of home rule still have not issued a concrete plan to lower property taxes – the major tax issue facing Rockford residents. Assuming such a plan is ever proposed, there's no guarantee it would be realized.

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N E W S & T I P S F O R T H ER O C K F O R D A R E A R E A L T O R ®

M A R C H 2 0 1 8

HOME RULE

HOTSHEET

The Illinois Constitution allows both counties and municipalities to obtain home rule status. Of the 191 home rule referendums that have appeared on ballots in Illinois between 1970 and 2000, 97 have passed and 94 have failed.

The Illinois Constitution allows a home rule city to “exercise any power and perform any function pertaining to its government and affairs.” Meaning

that the constitutional, legislative, and local constraints on home rule cities are minimal.

Home rule cities are able to regulate and impose taxes in any way they see fit to solve local issues. However such an arrangement is rife with potential for misuse of power, with excessive taxation and overbearing regulatory authority often the result.

WHAT IS HOME RULE?

After taking a deep dive into the numbers (‘Respective County Clerk/Supervisor of Assessments, Published Municipal Bud-gets, and Local Media Reports’), Rockford Area Realtors® rec-ommend a 'no' vote on home rule — in favor of better proven, more practical ways to reign in spending and solve budget deficits. Key reasons for the 'no' vote include:

Home rule taxes hurt working and low-income families hardest. Home rule allows cities to borrow as much as they want and tax as much as they want, all without direct voter input. This means higher costs for residents, especially senior citizens and middle- to low-income households.

Home rule cities across Illinois have suffered from risky ventures. A study by the Chicago Tribune found that home rule cities frequently go deeply into debt: "[Home rule] power can be used to benefit the politically connected, nearly bankrupt towns and saddle a generation with IOUs for which they had no direct say."

Illinois' home rule lacks fundamental checks and balances. The Tribune also found that residents have little chance to review new tax plans.

Home rule taxation possibilities are virtually endless. Home rule city governments can enact an unlimited number of taxes, all without voter approval, including gasoline, sales and local business taxes.

In the press conference announcing their stance on home rule, Rockford Area Realtors® also made the point that a vote for home rule won't change Rockford's tax or regulatory obligations to the State of Illinois. Home rule taxes and regulations do not replace State taxes and regulations, but add to them.

ROCKFORD AREA REALTORS RECOMMEND 'NO' VOTE ON HOME RULE

WHAT ARE THE MOST COMMONLY EMPLOYED HOME RULE TAXES?

TWO ADDED STICKING POINTS ABOUT HOME RULE LEGISLATIONThere are two additional ‘sticking points’ about the home rule legislation that concern Realtors®.

“A vote for home rule doesn’t release Rockford from Springfield’s authority,” commented Conor Brown, Governmental Affairs Director, Rockford Area Realtors®, “home rule cities cannot escape state regulations. They just add to it.”

Another concern is the lack of a concrete plan to reduce Rockford property taxes.

“The main tax issue facing Rockford residents is property taxes,” Brown said. “There is no real plan to reduce property taxes. Even if there was a plan to lower property taxes, there is no guarantee that the plan would ever be realized. We have seen too many home rule governments across the state increase property taxes.”

Steve Bois, CEO, Rockford Area Realtors®, said that the Association’s “deep dive” into reviewing Home Rule communities across the state clearly showed Realtors® that “home rule communities do not work better.”

Bois added, “We want Rockford to be an attractive place for businesses and residents to live, grow and prosper. Unfortunately, the research shows home rule runs counter to that ideal.”

Home rule cities typically seek to transfer local tax burdens from residents onto non-residents of the community. Anything can be taxed that is not income, occupations or earnings — without the need for voter approval. Here's a list of the most commonly enacted home rule taxes.

Municipal Retailers and Service Occupation Taxes. Basically, an added sales tax (passed concurrently at .25% increments with no maximum limit). For example, Joliet charges a 1.75% home rule added sales tax, which would the equivalent of Rockford having a total 10% sales tax.

The Hotel/Motel Tax. The revenue from a home rule hotel/motel tax may be applied to any public purpose while a non-home rule hotel/motel tax can only be used to promote overnight tourism and is limited by a 5% cap. Peoria has the highest cumulative hotel/motel tax rate in the state at 19%.

Gasoline Tax. An added tax on top of the federal tax of 18.4 cents/gallon and the state tax of 19 cents/gallon (plus the state 6.25% sales tax). Peoria and Elgin just raised their gasoline taxes.

Property Use Tax. A tax on all tangible property that is registered with the State, such as new or used cars, boats or other vehicles. Chicago charges an added 9.5% tax on tangible property, Cook County an added 8.25%. This would be a new tax for Rockford residents.

Property Taxes. While imposed by both home rule and non-home rule cities, non-home rule cities can only extend property taxes 5% (or the rate of inflation, whichever is less). There is no cap for home rule cities. Waukegan, a home rule city, has seen it’s property tax levy go up over 100% in the last 12 years.

Real Estate Transfer Tax. Tax charged when you sell your home. This tax has ranged anywhere from $2 to $10 per thousand dollar home value across different home rule communities in Illinois.

Food and Beverage Tax. A tax above and beyond the regular sales tax. Right now Springfield is considering a $5 million tax home on food and beverages.

Amusement Tax. A tax on musical and theater events, as well as streaming services like Netflix and Spotify. Chicagoans now pay a 5% amusement tax, with the city considering raising this tax to 9%.

Other potential real estate taxes include teardown taxes, mandatory rental inspections, landlord licensing, vacate property registrations, fire sprinkler retrofits, tenant taxes, renting taxes (commercial, industrial, retail), high impact fees and transition fees. The list is almost endless.

®

From 2006 to 2017, the largest home rule cities outside Chicago saw a double digit increase in their property tax levy, compared to just an 8% increase in Rockford. Waukegan saw a 120% increase, Springfield +48%, Peoria +46%, Elgin +44%, Joliet +30%, Aurora +30%, Champaign +27% and Naperville +20%.

In their 'no' vote recommendation on the home rule referendum on March 20th, Rockford Area Realtors® cited escalating property taxes as their primary concern. Proponents of home rule still have not issued a concrete plan to lower property taxes – the major tax issue facing Rockford residents. Assuming such a plan is ever proposed, there's no guarantee it would be realized.

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March 2018 Rockford Apartment Association Page 10

February Meeting

Larry Mills and Ken Becker Introduce the

vendors from Klonicki Construction.

Conner Brown from the realtors addresses group on Home Rule.

Cyndie Hall addresses the member-ship on neighborhood networks.

EJ and Bart from Home Depot raffle off gifts.

Welcome New Members!Please be sure to introduce yourselves and welcome the following members who have recently joined our ranks:

Pat Fisher

Chesky Rothman

A 70 year old man ask’s his wife: “Do you feel sad when you see me running after young girls?”

“No, not at all. Even dogs chase cars they can’t drive!”

March 2018 Rockford Apartment Association Page 11

Real Estate 1031 Exchange Rules & Requirements The most important real estate 1031 exchange rules for 2017 include: (1) Replacement property must be like kind. (2) Property must be for investment or business purposes only. (3) Replacement property must be of greater or equal value to the original prop-erty. (4) Taxpayer must not receive “boot.” (5) The seller and the buyer must be the same taxpayer. (6) Must identify new property (or 1-3 properties) within 45 calendar days. (7) Replacement property must be purchased within 180 calendar days.

Like Kind Exchange Rule 1: Like-Kind PropertyTo qualify as a 1031 exchange, the property being sold and the property being acquired must be “like-kind.”almost any type of property, as long as it’s not per-sonal property. For example:

1. Exchanging an apartment building for a duplex would be allowed.

2. Exchanging a single family rental property for a commercial office building would be allowed

3. Exchanging a rental property or vacation rental for a restaurant space would be allowed.

EXCEPTION: It’s important to note that the original and replacement property must be within the U.S. to qualify under section 1031.

**Another fun fact: Starker Exchanges can include more than two properties. For example, you can exchange one property for multiple replacement properties and vice versa: you can exchange multiple properties and for one larger property. As long as the new properties are like your original properties, you’re good to go. Do yourself a favor and get a good qualified intermediary to assist you.

Like Kind Exchange Rule 2: Investment or Business Property OnlyA 1031 exchange is only applicable for Investment or business property, not personal property. In other words, you can’t swap one primary residence for another. For example:

1. If you moved from California to Georgia, you could not exchange your primary residence in California for another primary residence in Georgia.

2. If you were to get married, and move into the home of your partner, you could notexchange your current primary residence for a vacation property.

3. If you were to own a single-family rental property in Idaho, you could exchange it for a commercial rental property in Texas.

Like Kind Exchange Rule 3: Greater or Equal ValueIn order to completely avoid paying any taxes upon the sale of your property, the IRS requires the net market value and equity of the property purchased must be the same as, or greater than the property sold. Otherwise, you will not be able to defer 100% of the tax.

For example, let’s say you have a property worth $2,000,000, and a mortgage of $500,000. To receive the full benefit of the 1031 exchange, the new property (or properties) you purchase need to have a net worth of at least 2 million dollars, and you’ll have to carry over at least a $500,000 mortgage. It’s important to note that the $2,000,000+ value, and $500,000 mortgage, can go towards one apartment building or three different prop-erties with a total value of $2,000,000+. (FYI: Acquisi-tion costs, such as inspections and broker fees also apply toward the total cost of the new property.)

Like Kind Exchange Rule 4: Must Not Receive “Boot”A Taxpayer Must Not Receive “Boot” from an exchange in order for a Section 1031 exchange to be completely tax-free. Any boot received is taxable to the extent of gain realized on the exchange. In other words, you can carry out a partial 1031 exchange, in which the new property is of lesser value, but this will not be 100% tax free. The difference is called “Boot,” which is the amount you will have to pay capital gains taxes on. This option is com-pletely okay, and often used when a seller wants to make some cash, and is willing to pay some taxes to do so.

An example of this would be if your original proper-ty is sold for $2,000,000 and the property you wish to exchange under section 1031 is worth $1,500,000, you

Like Kind Exchange Rules for Real Estate Investors 2017-2018 https://www.realwealthnetwork.com/learn/like-kind-exchange-rules-real-estate-2017/

by Benjamin Smith

In this article you’ll learn about like kind exchange rules defined under IRC Code Section 1031

March 2018 Rockford Apartment Association Page 12

would need to pay the normal capital gains tax on the $500,000 “boot.”

Like Kind Exchange Rule 5: Same Tax PayerThe tax return, and name appearing on the title of the property being sold, must be the same as the tax return and title holder that buys the new property. However, as an exception to this rule occurs in the case of a single member limited liability company (“smllc”), which is considered a pass-through to the member. Therefore, the smllc may sell the original property, and that sole member may purchase the new property in their individual name.

For example, the single member of “Sally Jones LLC” is Sally Jones. The LLC can sell the property owned by the LLC, and because Sally Jones is the sole member of the LLC, he can purchase property in his name, and be in compliance with the 1031 code.

Like Kind Exchange Rule 6: 45 Day Identification WindowThe property owner has 45 calendar days, post-clos-ing of the first property, to identify up to three poten-tial properties of like-kind. This can be really difficult because the deals still need to make sense from a cash perspective. This is true especially in today’s market because people tend to overprice their prop-erties when there are low-interest rates, so finding all the properties you need can be a challenge.

An exception to this is known as the 200% rule. In this situation, you can identify four or more proper-ties as long as the value of those four combined does not exceed 200% of the value of the property sold.

Like Kind Exchange Rule 7: 180 Day Purchase WindowTo qualify under a 1031 exchange it’s necessary that the replacement property be received and the exchange completed no later than 180 days after the sale of the exchanged property OR the due date of the income tax return (with extensions) for the tax year in which the relinquished property was sold, whichever is earlier.

As you might realize, there are many rules and qual-ification requirements that you must comply with in order to perform a successful 1031 exchange. To sum things up, the biggest advantages of a 1031 exchange is that you can avoid having to pay capital gains taxes on the sale of an investment property. This can be a huge benefit for real estate investors who know which markets are primed to grow next. It can also be a huge downfall for beginning investors, or those who don’t understand the changing real estate landscape. If you don’t you risk falling victim to one the biggest dis-advantages of a 1031 exchange–the reduced basis for depreciation on the replacement property.

This means that if you were to sell your replacement property, even at a deficit, you would still be account-able for the capital gains on the initial property. In other words, if you want to maximize the benefits of your exchange, it’s important that you choose your replacement property (or properties) wisely, investing in a market that has good potential for growth in the future.

Note: this content is part of Real Wealth Network’s Real Estate Learning Center, and was created for educa-tion purposes only.

A farmer who lived in a remote part of the country never ventured into the city until one day he was persuad-ed by his wife to take the family to a shopping mall. It was their first taste of city life. While the wife was in the toilet, the man and his young son looked around the mall. They were amazed by everything they saw, especially the two shiny silver walls that could move apart and then slide back together again.

“What is it?” asked the boy.

The father, never having seen an elevator, said:”I don’t know, son.”

They watched enthralled as an elderly lady went over to the moving walls and pressed a button. The walls then opened and she shuffled into a small room. The walls closed behind her, and the father and his son gazed in awe as the small numbers above the walls lit up in sequence. They continued to watch until the last number was reached and then the numbers began to light up in reverse order. Finally the walls opened again and out stepped a beautiful young woman.

Without taking his eyes off her, the father quietly said to the boy: “Go get your mother.”

March 2018 Rockford Apartment Association Page 13

EVICTIONS

The first step towards obtaining an eviction is to have a “Landlord’s Notice.” There are various types of landlord notices depending on the particular situation. The Winnebago County Law Library has self-help manuals avail-able that can explain the different types of notices and what steps must be taken in the eviction process.

Once the Sheriff’s Office receives the signed sealed Order from the Judge, a date and time can be set for Sheriff’s personnel to meet the plaintiff at the eviction address. The Sheriff’s Office will set the eviction date within three (3) business days after your possession date. This date can be set further out if requested since the eviction order is valid for one hundred-twenty (120) days from the date it is signed by the Judge. The Sheriff’s role at the evic-tion address is to enforce the Order and keep the peace.

The plaintiff is responsible for the manpower along with things like garbage bags and boxes that may be neces-sary to move the possessions to the nearest public property (normally the curb).

Fees for Service of Civil Papers$18.50 per service plus $1.00 per mile

Fees for Enforcement of an Eviction OrderEFFECTIVE AUGUST 1, 2011

Sheriff's fee for serving or attempting to serve an order of judgment for the possession of real estate in an action of ejectment or in any other action, or for restitution in an action of forcible entry and detainer without aid in the County are as follows:

$74.00 Fee for restoring possession $ 5.00 Return

$79.00**

Fee payable in advance, prior to scheduling.

**Mileage will be charged and added to the total, from the place of holding court to the place of residence of the defendant or witness, $.50 per mile each way. Additional Civil Process Fee Information

If an eviction is cancelled by notifying the Sheriff's Civil Process no less than one hour prior to the date and time set, a $5.00 non-refundable fee will be charged and the remaining eviction order fees will be refunded.

All requests for service shall be paid in advance.Make checks payable to the Winnebago County Sheriff.

If you have any questions regarding the eviction process or fee schedule; or to cancel an eviction please call 815-319-6150.

Rockford Apartment Association Directory

raa Service Directory

We, the members of the RAA, recognizing our duty to the public and the intimate nature of the relationship between the apartment resident and the owner, or manager, and being aware of the vastly increasing role of the apartment industry in providing the home of the future, and in order to provide the apartment-residing public with the maximum in quality and service upon the highest stan-dards of honest and integrity, do hereby bind ourselves, with each and every member, together a and alone, agreeing that, so long as we remain members of the RAA and so long as nothing contained herein shall be unlawful, we shall:

1. Promote, employ and maintain a high standard of integrity in the performance of all rental obligations and services in the opera-tion of our apartment communities.

2. Maintain and operate our apartment communities in accor-dance with fair and honorable standards of competition, ever mindful of the purposes of the Rockford Apartment Association and in compliance with the bylaws thereof.

3. Strive continually to promote the education and fraternity of the membership and to promote the progress and dignity of the apartment industry in creating a better image of itself in order that the public may be better served.

4. Seek to provide better values, so that an even greater share of the public may enjoy the many benefits of apartment living.

5. Establish high ethical standards of conduct within the apart-ment industry in the business relationship between the owner, managers and suppliers of products and services to the apart-ment industry.

6. Maintain property standards of the appropriate governmental authority.

7. Ensure that every qualified individual, regardless of that indi-vidual’s race, color, religion, gender, disability, familial status or national origin is afforded the same opportunity to rent an apartment and enjoy the benefits of apartment living.

Financial statement available upon request to members in good standing.

The content and opinions expressed in the RAA newsletter do not necessarily reflect the views of, nor are they necessarily endorsed by, the Rockford Apartment Association or its board.

Abby Pest Elimination 815-207-9255

All Seasons Carpet Cleaning 815-399-8690

Asset Protection Ins. 815-708-7445

Baney Construction 815-319-3333

Don’s Appliance Service 815-877-2553

Eckburg Insurance Group 815-877-4100

G.W. Porter, Process Service 815-961-8100

IL Bank & Trust, Dennis Roop 815-637-7008

Ken Becker Realtors 815-399-8000

Nicholson Hardware 815-963-4821

Northern IL Sewer Service 815-229-1174

SKV Construction 815-245-6098

TRI-B Hardware & Supply 815-399-2828

Trickie Enterprise 815-637-6524

Weichert Realtors/ Tovar Properties 815-877-8500

raa BoarD MeMBerS

President Karl Fauerbach 815 877-6077

Vice President Mary O’Sullivan-Snyder 815-988-2755

Secretary Ken Opperman 815-248-4248

Treasurer Mike Cavataio 815-397-3320

Nominating Com. Ken Becker 815-399-8000

Newsletter Advertising Lynn Olsen 815-222-0606

Vendor Table Spring Banquet Mary O’Sullivan-Snyder 815-988-2755

General Meeting John Kirschbaum 815-871-0696

Bus. Forms Allen Much 815-963-4123

Membership Debbie Chamberlain 815-871-4713

Programs Director Larry Mills 815-289-1607

Events Photographer Jerri Cole 779-537-4257 Lynn Olsen 815-222-0606

Marketing Katty Roggensack 815-222-0324

Web Site TBA

Newsletter Editor Karl Fauerbach 815-877-6077

Jerri Cole 779-537-4257

Government and Public Affairs Director Paul Arena 815-243-2924

IRPOA Rep Paul Arena 815-243-2924

*Legal Counsel (Board Advisor) Tom Wartowski 815 978-1572

Rockford Apartment Association Code of Ethics