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22
Jul

California FTB Denies Exchange Based on Cash Out at Closing:
Analysis and Response

It’s no secret that the California Franchise Tax Board (“FTB”) has become very aggressive in challenging 1031 exchanges.  In a recent audit, the FTB held that an exchange failed based on a practice which has become commonplace: the distribution of a portion of the relinquished property sales proceeds to the taxpayer, as boot, at the close of escrow.  The FTB’s analysis suggests that a change in practice may be required to avoid running afoul of this new basis for challenging exchanges.

In the Audit, the taxpayer entered into an exchange agreement where the taxpayer relinquished her right to all cash proceeds from the sale of the relinquished property.  Prior to the close of escrow, the taxpayer sent an e-mail to the escrow agent instructing the escrow agent to release $150,000.00 of the proceeds from the sale to the taxpayer.  There was no reference to any document allowing the taxpayer to take the money, and no communication to or from the QI.

The FTB held that the ability of the taxpayer to direct the closer to distribute a portion of the sales proceeds to her constituted “constructive receipt” of all of the sale proceeds, disqualifying the transaction from 1031 exchange treatment.  The FTB found that the ability of the taxpayer to instruct the escrow company by simple notice showed that there were no restrictions on the taxpayer’s access to the sales proceeds, and this constituted constructive receipt.  The FTB also held that, since the taxpayer had expressly assigned all of the cash proceeds to the QI in the exchange agreement, the taxpayer had relinquished her right to receive any cash proceeds in the transaction.

APPLICATION: Given the position of the FTB regarding the receipt of cash at closing, how should the arrangement among the taxpayer, QI and escrow agent be structured?  The approach being used by Asset Preservation, Inc. involves: (i) the taxpayer expressly excluding the amount they want to receive from the sales proceeds assigned to the QI in the exchange agreement; and (ii) the instructions to the closer acknowledging the exclusion of this amount, and the right of the taxpayer to receive this amount at the closing.


California FTB Allows Only Partial Exchange
Due to Violation of the Identification Rules

In another recent audit, the FTB partially disallowed a taxpayer’s exchange because the taxpayer did not properly identify replacement property as required by Section 1031.  The audit presented a textbook case of the application by the FTB of the following 1031 basic identification rules:

  • During the 45-day identification period (“Identification Period”), a taxpayer can identify up to three properties, regardless of value.
  • A taxpayer can identify more than three properties as long as the total value of the identified properties does not exceed 200% of the value of the property sold.
  • If both of these rules are violated, the taxpayer will be treated as having failed to identify any properties, except:
    • Any properties actually acquired by the taxpayer during the Identification Period will be considered properly identified; and
    • All properties identified during the Identification Period will be treated as properly identified if the taxpayer actually acquires properties with a total value equal to 95% of the total value of the properties identified.

In the FTB audit, the taxpayer identified five properties during the Identification Period.  The FTB found that the total value of the identified properties was 267% of the value of the property sold, and the taxpayer did not provide evidence to refute this valuation.  The taxpayer actually acquired two properties during the Identification Period.  The taxpayer acquired one other identified property, after the expiration of the Identification Period.  The total value of the properties acquired by the taxpayer was less than 95% of the value of the properties identified.

Applying the above rules, the FTB held that the two properties acquired during the Identification Period were properly identified like-kind properties, but the property acquired outside of the Identification Period was not like-kind property since it was not properly identified.  The proceeds applied toward the purchase of the third property, therefore, were treated as boot and not included in the exchange. 

APPLICATION:  The identification rules are fairly easy to understand, but must be meticulously applied.  For example, if a taxpayer chooses to use the 200% rule, the taxpayer should make sure the combined fair market value of all identified properties does not exceed 200% of the fair market value of the relinquished property. For a more thorough review of the identification rules, Read More…


Proposed Repeal of Section 1031 Would Hurt Taxpayers

Three separate tax reform proposals have been advanced by the House Ways and Means Committee, the Senate Finance Committee and the Treasury Department to either repeal or restrict tax deferral of gain from Section 1031 exchanges of like-kind property.

Like-kind exchanges benefit millions of American investors and businesses every year. Section 1031 exchanges encourage businesses to expand and help keep dollars moving in the U.S. economy. Without the tax-deferral benefit that 1031 exchanges provide, small and medium sized businesses would not be as equipped to reinvest in their businesses, real estate values would decline, the U.S. economy would suffer, and businesses of all sizes would lose the opportunity to expand. The repeal of Section 1031 will cause a decline in real estate values as investors will be motivated to hold on to properties and to invest in more liquid, non-real estate investments with faster returns. The proposals effectively impose punitive and targeted tax increases on economically sound commercial real estate investment, the likely unintended consequence of which will be similar to implementation of 1986 tax reform modifications that resulted in a recession.

Take Action:
Send a strong message to lawmakers that 1031 exchanges are a powerful economic tool. Learn more and voice your opposition to these proposals with these critical actions at www.1031taxreform.com.


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26
Jun

Taxpayer Uses Disqualified Person as a QI

Taxpayer Uses Disqualified Person as a Qualified Intermediary (QI)

In  Blangiardo v. Commissioner, T.C. Memo. 2014-110, the taxpayer hired his son to serve as his intermediary. The taxpayer duly reinvested the exchange proceeds into like-kind replacement property in accordance with the 1031 exchange requirements. 

The taxpayer’s position was that his exchange should have been valid, with his son as intermediary, because his son was an attorney, the exchange proceeds from the sale of the relinquished property were held in an attorney trust account, and the documents involved refer to the transaction as a 1031 exchange.

The Court did not accept these arguments of Mr. Blangiardo. The 1031 exchange requirements are very specific regarding who can be a qualified intermediary. Neither the taxpayer nor anyone considered a Disqualified Person can function as a qualified intermediary. The definition of "disqualified person," set forth in Reg. 1.1031(k)-1(k)(3), is very explicit, and a lineal descendant, such as a son or daughter, is specifically disqualified from being an intermediary, regardless of his or her profession.

Real estate investors and their advisors should keep in mind that there is also a broader category of people and entities that are considered disqualified persons and this includes anyone who is considered an agent of the taxpayer. An agent of the taxpayer includes a person who has acted as the taxpayer’s employee, attorney, accountant, investment banker or broker, or real estate agent or broker within the 2-year period ending on the transfer of the relinquished property, with certain exceptions. Learn more about Understanding the Role of Qualified Intermediary and The Definition of a Disqualified Person.


Asset Preservation’s Joan Poimiroo Retires

1031 Exchange Basics

Joan Poimiroo, Senior Vice President of Asset Preservation, Inc. (API) retires this month after more than 20 years of service. She joined API in 1993, just three years after it was founded.

“Joan has helped create and shape the API everyone knows today, what we consider the best 1031 company in the nation,” says API President Javier Vande Steeg. “During her long career, she has impressed thousands of tax professionals, attorneys, escrow professionals and clients alike.”

Colleagues recognize Joan for thoroughness and attention to detail, but say that her trademark is staying calm under pressure and being patient with clients. “I truly believe that Joan has a special gift of imparting sincerity and care to everyone she works with,” Javier adds.

API is grateful for her many years of service, and wish her well in the years to come! Joan and her husband plan to spend their retirement catching up on traveling.

“She will have a special place at API forever,” Javier says. “Cheers, Joan – what a magnificent performance over these past 21 years!"


1031 Basics: Contract Language

1031 Exchange Basics

Although many exchangers include language in their Purchase and Sale Agreements establishing their intent to perform an exchange, it is not required by Section 1031. It is important, however, that the Purchase and Sale Agreements for both the relinquished and replacement property are assignable.

Learn more about 1031 Exchange Contract Language.


IRS Adopts “Taxpayer Bill of Rights”

The Internal Revenue Service this week announced the adoption of a “Taxpayer Bill of Rights.” The Taxpayer Bill of Rights takes the multiple existing rights embedded in the tax code and groups them into 10 broad categories, making them more visible and easier for taxpayers to find. Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. Explore your rights and our obligations to protect them. Read More…


Top 10 Metros with Highest Rent Growth in May

Top 10 Metros with Highest Rent Growth in May

According to Axiometrics, Odessa, Texas led in May as the number 1 rent growth metro area in the United States with a 13.2% increase in rents. To read about the other top 10 markets, Read More…


We Need Your Help. Tell Congress Not to Repeal 1031 Exchanges.

Congress is debating tax reform, and they are seriously considering a repeal to 1031 exchanges. Like-kind exchanges benefit millions of American investors and businesses every year. 1031 exchanges encourage businesses to expand and help keep dollars moving in the U.S. economy. Tell Congress 1031 exchanges have powerful value to the U.S. Economy. Bring your voice to the discussion in Washington, D.C.! Take Action Now…


Study Reveals U.S. Cities Most And Least Recovered Since The Recession

Study Reveals U.S. Cities Most And Least Recovered Since The Recession

A recent report uses several key data points to determine which cities have best recovered since the recession, considering the percentage change in the civilian unemployment rate, the change in median household income, and the change in median home value, in 510 American cities from the end of the recession in 2009 to the most recent available data in 2012. Data was provided by the U.S. Census Bureau. Read More…


Attend a Complimentary 1031 Exchange Webinar

Title: 1031 Exchanges & Tax Planning in an Environment of Increasing Taxation
Presenter: Scott Saunders, Asset Preservation, Inc.

Course Description
This 90-minute course provides a concise and thorough overview of IRC Section 1031 tax deferred exchanges for accountants, CPAs and tax advisors. In addition to covering critical IRS time deadlines, like-kind requirements, and other exchange-related issues; the class will provide a summary of current developments including applicable Revenue Rulings, PLRs, and other IRS guidance on current issues related to exchanges.

Course Details:
Date: Monday, July 14, 2014
Time:
9:00 a.m. – 10:30 a.m. (PST)
Cost: Free
CPE
Credits: 1.5 hour (Accountants & CPAs)

Click here to View Details and Registration Info at cpaacademy.org


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07
May

1031 Exchanges Face Uncertain Future

1031 Exchanges Face Uncertain Future

Section 1031 Under Siege

There are currently three different proposals that the federal government is weighing, which would significantly alter Section 1031:

  1. Former Sen. Max Baucus (D-Montana), who became U.S. ambassador to China earlier this year, released a draft proposal when he was chairman of the Senate Finance Committee that would potentially eliminate 1031 exchanges. His proposal, which is still before the Senate Finance Committee for discussion, contains other provisions unfavorable to real estate investments, including lengthening depreciation schedules for commercial and residential properties from 39 and 27.5 years, respectively, to 43 years for both and characterizing gains from real estate sales as ordinary income, instead of capital gain.

  2. U.S. Rep Dave Camp (R-Michigan), chairman of the House Ways and Means Committee, has released a proposed tax bill eliminating all Section 1031 exchanges beginning Jan. 1, 2015.

  3. President Obama, in his 2015 budget proposal, wants to limit the amount of capital gains deferred in a 1031 exchange to $1 million (indexed for inflation) per taxpayer per taxable year, beginning Jan. 1, 2015.

Read More…


Asset Preservation’s Eastern Regional Office has Relocated

API's Eastern Regional Office

The surge in 1031 tax deferred exchange activity has dramatically increased in the Eastern United States. To help provide continued excellent customer service, Asset Preservation’s Eastern Region Office has relocated to a new larger location at 100 Motor Parkway, Suite 150 Hauppauge, NY 11788 (See it on a map). Our toll-free phone number remains the same, 866-394-1031.

Jennifer A. Pendzick


Jennifer A. Pendzick | VP of Operations – Eastern Region
100 Motor Parkway, Suite 150 Hauppauge, NY 11788


1031 Basics: 1031 Exchange Checklist

1031 Exchange Basics

Are you looking for an easy-to-use reference guide for the steps involved in a typical delayed 1031 exchange transaction? Download Asset Preservation’s 1031 Exchange Checklist to access a useful one-page checklist showing the steps involved before signing the contract for the sale of the relinquished property, setting up an exchange with a qualified intermediary, the 45-day identification period, acquiring replacement property and through the end of the 1031 exchange process. Download Here…


PLR 201416006 (Reverse Exchange with Multiple Related Parties Selling)

This ruling addresses a creative situation involving a taxpayer and two related parties that intended to acquire the same replacement property in accordance with IRC Section 1031 and also Revenue Procedure 2000-37. The IRS permitted tax deferral under Section 1031 even though the Exchange Accommodation Titleholder (EAT) entered into Qualified Exchange Accommodation Arrangements (QEAAs) with more than one entity, including entities related to the taxpayer, both of whom had a bona fide intent to utilize a reverse exchange format to defer capital gain taxes.

Private Letter Ruling 201416006 notes that Revenue Procedure 2000-37 does not prohibit an EAT from functioning as an EAT to more than one taxpayer under multiple QEAAs for the same parked exchange property.


Charts on Real Estate Prices, Loan Rates and Housing Statistics

View Chart

To access charts showing you the latest real estate related trends, view charts, and access the S&P Case-Shiller 20-City Home Price Index, National Home Price Index, Average Sales Price of Houses Sold by FHA, Housing Starts, Residential Construction Spending, Housing Affordability Index, Household Debt to Disposable Income, and CPI – Rent of Primary Residence 30 Year Conventional Rate Mortgage. View Charts…


Building Wealth through Real Estate Investing and 1031 Exchanges Webinar

Did you know that capital gain taxes percentage-wise went up 58%? 

Fact! 1031 Exchange expert, Scott Saunders of Asset Preservation Inc, along with Bruce Bowen of Avenue A Investment Properties, explain how 1031 exchange activity is dramatically on the rise. Learn about what is happening today with 1031 exchanges, the rules for full tax deferral, the 45/180 day deadlines, how to identify property, reverse & improvement exchanges, the types of qualifying like-kind property, Qualified Intermediary due diligence. Additionally, the webinar features some fantastic, high cash flowing rental real estate now on sale in some of the attractive markets in the country. Register Now…


Six States Post New Highs in Home Prices

Six States Post New Highs in Home Prices

Home prices in five states, Colorado, North Dakota, South Dakota, Texas and Wyoming and the District of Columbia posted peak prices in March. Read More…


Attend a Complimentary 1031 Exchange Webinar

Title: The Power of Strategy: Mastering 1031 Tax Deferred Exchanges
Presenter: Scott Saunders, Asset Preservation, Inc.

Course Description
This 90-minute course provides a concise and thorough overview of IRC Section 1031 tax deferred exchanges for accountants, CPAs and tax advisors. In addition to covering critical IRS time deadlines, like-kind requirements, and other exchange-related issues; the class will provide a summary of current developments including applicable Revenue Rulings, PLRs, and other IRS guidance on current issues related to exchanges.

Course Details:
Date: Monday, May 19, 2014
Time:
9:00 a.m. – 10:30 a.m. (PST)
Cost: Free
CPE
Credits: 1.5 hour (Accountants & CPAs)

Click here to View Details and Registration Info at cpaacademy.org


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10
Dec

Happy Holidays from Asset Preservation

Happy Holidays from API’s President

To all of our Clients and Associates,

I extend to you a sincere HAPPY HOLIDAYS! 2013 has been a very busy year for all of us involved in 1031 exchanges and it has been a pleasure working with many past clients and new ones as well. In light of the significant increase in exchange activity, I had the pleasure of bringing on many new associates to API who are eager to carry out API’s longstanding tradition of providing excellent service and superior transactional expertise. I wish you and your families a safe and joyous Holiday Season, and I look forward to working with you in 2014.

Javier G. Vande Steeg


Javier G. Vande Steeg
President


California Tax Filing Requirement for Exchanges Beginning 1/1/14

Under IRC Section 1031, taxpayers can defer capital gains by exchanging real property held for use in a trade or business, or for investment, for other like-kind property. For sellers subject to California income tax, California’s tax law follows federal law for purposes of deferral under Section 1031, so California’s income tax is also deferred. In each case, the deferred capital gain continues as a tax attribute of the replacement property acquired by the taxpayer in the exchange. In the past, taxpayers sometimes used Section 1031 to acquire replacement property outside California in order to avoid California’s income tax in a later taxable sale. Read More…

California Tax Filing Requirement for Exchanges Beginning 1/1/14

Do you have a Property Closing before the End of 2013?

Contact Us

Many investors and their advisors have real estate transactions closing near the end of December. If you or your client have an investment property transaction closing before the end of 2013 – and you have not already set up a 1031 exchange – keep in mind Asset Preservation is available to set up your exchange at the last minute! We can often set up a new 1031 exchange, converting an otherwise taxable sale into a deferred transaction, within a matter of hours. A properly structured exchange provides an investor with up to 45 calendar days to potentially find suitable replacement property. For more information, please call us toll-free at 800-282-1031 or via email at info@apiexchange.com.


Year-End Tax Tips from the IRS – 2013

Watch a video from the IRS’s YouTubeChannel about suggestions for taxpayers at the end of the year, Watch Now…


Good News for Owners of Smaller Residential Rental Properties

The IRS has finally issued the final version of its monumentally long and complex regulations explaining how to deduct improvements and repairs to business property, including commercial buildings and residential rentals. The final regulations, which take effect Jan. 1, 2014, contain several pleasant surprises for small-business owners, including owners of rental properties. One of these is the “safe harbor for small taxpayers”. Read More…


Housing Markets Continue Slow Climb Back to Normal

Markets in 54 out of the approximately 350 metro areas nationwide returned to or exceeded their last normal levels of economic and housing activity, according to the National Association of Home Builders/First American Leading Markets Index (LMI), released recently. The index’s nationwide score of .86 indicates that, based on current permits, prices and employment data, the nationwide market is running at 86 percent of normal economic and housing activity. Read More…


Top 10 Multi-Family Rent Growth Markets of 2014

According to Multifamily Executive, industry experts project the top 10 metro markets that should see the largest growth in multifamily rents in 2014. Seattle is at the top of this list and other markets like Denver, San Francisco, Austin, and New York City are also included. To see the top 10 multifamily growth markets, Read More…


Attend a Complimentary 1031 Exchange Webinar (1hr CPE Credit)

Title: The Power of Strategy: Mastering 1031 Tax Deferred Exchanges
Presenter: Scott Saunders, Asset Preservation, Inc.

Course Description
This one hour course provides a concise and thorough overview of IRC Section 1031 tax deferred exchanges for accountants, CPA’s and tax advisors. In addition to covering critical IRS time deadlines, like-kind requirements and other exchange-related issues, the class will provide a summary of current developments including applicable Revenue Rulings, PLR’s and other IRS guidance on current issues related to exchanges.

Course Details:
Date: Wednesday, January 8, 2014
Time:
9:00 a.m. – 10:00 a.m. (PST)
Cost: Free
CPE
Credits: 1.0 hour (Accountants & CPAs)

Click here to View Details and Registration Info at cpaacademy.org


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20
Aug

New Leasehold Case & Other 1031 Exchange Updates

Recent Case: Leasehold Interests Not Like-Kind to Fee Interest

In order to qualify for tax deferral under Internal Revenue Code §1031, both the property sold as relinquished property and the property acquired as replacement property must be like-kind. §1.1031(a)-1(b) of the Treasury Regulations clarifies that the term “like-kind” refers to the nature or character of the property interests involved, but not the grade or quality of the specific property. Under this test, the courts have generally concluded that a fee simple interest in real property is like-kind to a wide range of real property interests. Thus, developed land is like-kind to undeveloped land and a fee interest is like-kind to certain mineral interests, water rights and certain long term leasehold estates. Along those lines, Treasury Regulation §1.1031(a)-1(c) provides that a tenant’s interest in a leasehold estate with 30 years or more remaining to run, including option extensions, is like-kind to a fee simple interest in real property. Given the specificity of the regulation, most tax advisors believe that a taxpayer attempting to exchange a leasehold interest with less than 30 years remaining at the time of the exchange would not be like-kind to a fee simple interest in other property.

In VIP Industries Inc. & Subsidiaries v. Commissioner, T.C. Memo 2013-357, the taxpayer exchanged a leasehold interest with a remaining term of 21 years for fee simple interests in two Oregon replacement properties. There were no option extensions. After citing regulation §1.1031(a)-1(c) and reviewing precedent cases, the court concluded that leasehold interests with remaining terms similar to the one at issue are not like-kind to fee interests in real property. Precedent cases included May Department Stores Co. v. Commissioner, 16 T.C at 556, (holding that a 20-year leasehold was not like-kind to a fee interest); Standard Envelope Mfg. Co. v. Commissioner, 15 T.C. at 48 (holding that leasehold interest with a terms of 1 year and an option to renew for a term of 24 years was not like-kind to a fee interest). Thus, in the VIP Industries case, the court found that the taxpayer’s leasehold interest in VIP Industries with a term of 21 years and 4 months remaining is closer in nature to the leasehold interests and not like-kind to a fee interest. As such, the exchanger was not entitled to deferral of tax under Section 1031.

In light of the VIP Industries case, taxpayers who wish to exchange a leasehold interest for a fee interest should only proceed if the leasehold interest has more than 30 years remaining, including options to renew that would extend the leasehold interest over the 30 year threshold. As always, consult with your tax and legal advisors about your specific situation well in advance of a contemplated 1031 exchange.


Vacation Homes and Other Ownership Tax Issues

Vacation Homes Handbook
» Click here to download

According to the National Association of Realtors, the
vacation home market is heating up again and many real estate professionals are reporting strong sales in many vacation home hot spots.

In response to increased activity in many vacation markets, Asset Preservation has created a brand-new Vacation Home Handbook that covers many tax issues related to the ownership and sale of a vacation or second home. This brochure is very comprehensive, contains hyperlinks to key tax code sections and provides useful guidance to property owners, real estate professionals, closers, attorneys and CPAs in resort communities and vacation home marketplaces throughout the United States. This is a “must have” resource for anyone involved with real estate in a vacation area or resort market!!

API’s Vacation Homes Handbook contains the following information:

 
  1. TAX TREATMENT AT DISPOSITION: QUALIFYING FOR A 1031 EXCHANGE:
    This section discusses the “safe harbor” for exchanges of vacation homes and also what will not qualify for an exchange of a vacation home property.
  2. TAX TREATMENT DURING OWNERSHIP
    1. Second Home/Vacation Home with No Rental Activity
      1. Tax Consequences during Ownership
      2. Tax Consequences at Disposition
      3. How to determine if a vacation property could be considered a principal residence and qualify for Section 121 tax exclusion
    2. Second Home/Vacation Home Rented Less than 15 Days a Year
      1. Tax Consequences during Ownership
      2. Tax Consequences at Disposition
    3. Vacation Home Rented for More than 15 Days a Year
      1. Tax Consequences during Ownership
      2. Tax Consequences at Disposition
    4. Property Held Primarily for Investment in a Vacation Area
      1. Tax Consequences during Ownership
      2. Tax Consequences at Disposition
  3. CONVERTING A VACATION HOME INTO AN INVESTMENT PROPERTY
  4. USEFUL LINKS TO CALCULATE CAPITAL GAIN TAXES AND MUCH, MUCH MORE…

U.S. Median House Price Climbs the Most in 7 1/2 Years

The median selling price of an existing single-family home reached $203,500 in the second quarter, a 12.2% increase compared with Q2 of 2012 and the sharpest year-on-year gain since Q4 of 2005, according to the National Association of Realtors. Tightening inventory is a major factor, Chief Economist Lawrence Yun says. Read More…


New Reporting Requirement For Certain California 1031 Exchanges

California has enacted a new reporting for taxpayers who exchange out of a relinquished property located in California and into replacement property located outside of California. For tax years beginning on and after January 1, 2014, taxpayers that exchange out of California must file a report with the Franchise Tax Board for the year of the exchange and for subsequent tax years. The statue creates a new procedure for tracking deferred gain and Section 18032 has been added to the California Revenue and Taxation Code. California has always maintained that the deferred gain was taxable in California and this new procedure will make it easier to enforce these rules. Read More…


National Council of Real Estate Investment Fiduciaries Property Index

Privately owned real estate produced a return of 2.87% in this year’s second quarter, according to the property index managed by the National Council of Real Estate Investment Fiduciaries. That was the highest return indicated by the NCREIF index since the fourth quarter of 2011. Read More…


Top 10 Places in the U.S. to Buy a Vacation Home

According to a National Association of Realtors study, approximately one-in-four vacation home market buyers purchased with the intention to rent out their vacation area property. VacationHomeRentals.com, reported their list of the most popular June destinations, and compiled a Top-10 listTo see the top-10 June destinations reported by VacationHomeRentals.com, Read More…


Webinar: Exchanges & Tax Planning in an Environment of Increasing Taxation

This 1.5 hour CPE course provides a concise and thorough overview of IRC Section 1031 tax deferred exchanges for accountants, CPAs and financial advisors. In addition to covering critical IRS time deadlines, “like-kind” requirements and other exchange related issues, the class will provide a summary of current developments including applicable Revenue Rulings, PLR’s and other IRS guidance on current issues related to exchanges. Register Now…

Dates: September 23rd
Time: 12:00 p.m. – 1:00 p.m.
EST
Cost: Free
Credit: 1.5 Hours (CPE)


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07
Aug

When to Pay the Piper (and how much will he charge)?

By Jon Christianson, Esq., JD, LLM Tax

Tax rates on capital gains are scheduled to increase in 2013 if Congress fails to extend the current rates. Should I pay my tax now or take a wait and see approach with a 1031 exchange?

For the full article on When to Pay the Piper (and how much will he charge)?, read more…


1031 Basics: Capital Gain Tax Calculator

1031 Exchange Basics

It is always prudent to consult with your tax and/or legal advisors about the tax consequences of selling before closing on the sale of a relinquished property, as a 1031 exchange generally cannot be set up after closing has occurred. Prior to seeking the input of your tax advisors and your specific situation, you can use Asset Preservation’s Capital Gain Calculator to obtain an approximate estimate of your capital gain tax liability. Enter your figures in the fields provided and click on the “Calculate” button in each area to determine your capital gain. Calculate Your Capital Gain Taxes Now…


New IRS Regulations Clarify "Repair" vs. "Capitalization"

This past Spring the IRS released Bulletin 2012-14 (T.D. 9654), Guidance Regarding Deduction and Capitalization of Expenditures Related to Tangible Property. The intent of the IRS was to clarify the current rules for capitalization. The new regulations define an improvement as a betterment, adaptation or restoration to a unit of property. The new regulations also list eight building systems that should be evaluated as their “own unit of property” and tax advisors preparing returns for investment property owners should review these new regulations thoroughly.

For more information on IRS Regulations Clarify Repair vs Capitalization, read more…


Correctly Reporting Rental Real Estate

Real estate investors should correctly report rental real estate activity. Investors who are not real estate professionals generally must follow the passive activity loss limitations even if they materially participate in their rental real estate activities. Real estate professionals report rental real estate activities in which they materially participated as non-passive. However, real estate professionals who do not materially participate in rental activities are generally subject to passive activity loss limitations. Publication 925, Passive Activity and At-Risk Rules, includes more information on who qualifies as a real estate professional and the passive activity limits.

For more information, see the Passive Activity Loss Audit Technique Guide.


Recent Case Affirms Liability Because TICs
Not Sold in Conformity with Security Laws

In Redding vs. Montana First Judicial District Court, 2012 WL 2628053 (Supreme Court of Montana, 2012), the Court ruled on an aspect of the bankruptcy of DBSI, the largest company in the tenant-in-common (TIC) industry to go bankrupt. There had been significant debate in the past about whether or not TIC investments should be treated as securities (and promoted in adherence to all applicable securities laws) or treated as real estate investments. In this case involving a 1031 exchange into a replacement property that was a TIC promoted by DBSI, the Court determined that every applicable test of what comprises a security was met by the DBSI TIC property. In the end, the Court concluded that both the accounting firm and brokerage firm that recommended DBSI could be liable for losses the exchanger experienced due to the fact the TIC investment had not been promoted or sold in accordance with security laws.

For more information on Redding vs. Montana First Judicial District Court, read more…