Author: Giang Hoang-Burdette

October 2008: Ten Things Brokers and Agents Should Consider

1. Due diligence disclosures have never been more important. The real estate industry is under intense public scrutiny in the existing economic climate, with politicians eager to place blame. Brokers and agents need to protect their deals and look out for their clients’ best interests by reviewing all aspects of the subject property. Opinions and concerns should be explained to the client as soon as possible. Getting information and counseling clients takes time, but better time spent during the agency than later as a defendant in a lawsuit. Silence becomes dangerously noisy in the current market environment. For the next three or four years, principals will be fast to blame any professional involved in the transaction for the effect any lack of information or oral advice may have had on their proceeding with a transaction, be it a listing, a purchase agreement, a loan, or a lease. 2. Know how the plans for a Federal bailout will affect real estate. An informed agent will be ready to adjust to the changing market environment. Watch and determine what Congress is doing for real estate, not what the market is doing for real estate. For the next three or four years, real estate will be driven by what Congress does to cover for what the Federal Reserve and US Treasury allowed to happen over the past decade. Wall Street got into...

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91-day T-bill rate added!

We’ve added the 91-day T-Bill rate to our list of monthly rates reported. This rate determines the minimum interest rate a seller must report and impute in a delayed §1031 transaction when he is not receiving interest on §1031 monies held by a facilitator or accomodator. The rate also sets the amount of ordinary income the facilitator must report. You can find this, and all the other rates reported monthly, in our August edition of the first tuesday journal...

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Interest imputed on §1031 monies delivered to facilitators

This article digests the treatment of interest income on §1031 monies held by a facilitator in a deferred §1031 transaction. Beginning October 8, 2008, the seller who is not to be paid a rate of interest on his §1031 monies will report and be taxed as receiving interest at a minimum imputed rate of interest on §1031 monies held by a facilitator (also called a §1031 trustee or qualified intermediary) in a deferred §1031 transaction. In turn, the facilitator who holds §1031 monies without an agreement to pay the seller some rate of interest will in turn report as compensation for services rendered by the facilitator the amount of imputed interest the seller must report. The monies subject to imputed interest when no interest is agreed to be paid to the seller include: cash proceeds from the property in sold in a deferred §1031 transaction; cash or cash equivalents securing an obligation to deliver replacement property; below-market loans from the seller to §1031 transaction facilitators; or properties sold in a delayed §1031 transaction. Interest on §1031 monies held by a facilitator are not imputed if: interest on the monies is earned by and credited to the seller, and the seller is responsible for reporting the interest [See first tuesday Forms 172-4 and 173-4]; or the §1031 monies held for the seller by the facilitator: do not exceed $2,000,000; and...

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Two or more depreciation schedules for §1031 replacement properties

This article reports changes to depreciation schedules for §1031 replacement properties. The cost basis for a replacement property acquired in a §1031 transaction is depreciated, in part, based on the depreciation schedules used for the property sold. Initially, the annual amount of the depreciation deduction taken on the property sold and the years remaining on that depreciation schedule continue to be reported for the replacement property acquired in the §1031 transaction when both legs are residential property and a trade-up in price occurs. [26 Code of Federal Regulations 1.168(i-6)] The cost basis for replacement property, as always, is built by first carrying forward the remaining (adjusted) cost basis in the property sold. Upward adjustments to that basis are made for additional cash invested or increased amounts of debt assumed or created to fund the replacement property’s purchase. Alternatively, downward adjustments are made for a trade-down in debt and any withdrawal of cash, carryback paper, or un-like kind property received for the property sold. [See first tuesday Form 354] The cost basis established on a trade-up into greater debt (or due to an additional investment of cash or execution of a note) to acquire the replacement property is then allocated between improvements (to set the depreciable cost basis) and land. The amount of the depreciable (exchange) basis which remained in the property sold is separated from the replacement property’s newly...

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