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...Read More
Author: Giang Hoang-Burdette
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...Read More
This article examines the use and effectiveness of mediation as an alternative to litigation or arbitration. The essence of mediation is familiar to real estate brokers.In negotiating contracts between buyers and sellers, the broker is constantly using the skills of a mediator to arrange offers and counteroffers, oral and written, between his client and prospective buyers. However, when communications break down between principals after they have entered into a binding real estate purchase agreement and the brokers can not resolve the impasse, it is then that several options become available to the feuding parties: litigation; arbitration; or mediation. Instead...Read More
by Giang Hoang In 1995 California passed its first anti-smoking law prohibiting smoking in indoor workplaces and promoting public health by recognizing the danger in second-hand smoke. Several other such bans have followed, including the most recently enacted ban on smoking in cars with minor occupants effective this year. However, these smoking laws have thus far failed to address tobacco smoke where exposure is most invasive: the home. While unlikely that smoking will ever be banned in a private residence, what about the effects of tobacco smoke on the residents of an apartment building? The adverse effects of tobacco on health Environmental tobacco smoke (ETS) is a combination of over 4,000 gases and particles, many of which have been identified as toxic air pollutants. ETS can be inhaled either directly (first-hand smoke) or indirectly (second-hand smoke). Health effects of ETS include: developmental effects, including low-birth rate and pre-term delivery; respiratory effects, including asthma and respiratory tract infections; lung cancer; and heart disease. The California Air Resources Board (CARB) estimates that a smoker’s home contains levels of nicotine roughly 30 times that of a non-smoker’s home. Existing laws affecting tobacco smoke in multi-units: rights of a tenant Tenants are currently protected by two existing anti-smoking laws: Labor Code §6404.5; and Government Code §12900-12996, also known as the Fair Employment and Housing Act (FEHA). Under Labor Code §6404.5, smoking is prohibited...Read More
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