GOING ONCE, GOING TWICE---REAL ESTATE AUCTIONS !!

An article that appeared in the Wall Street Journal noted that a major national builder (Lennar) "...was among the first U.S. homebuilders to aggressively discount homes in order to move inventory; now ...(they are) placing another potentially trend-setting bet by testing eBay-style Internet sales in the housing market...The Internet-auction gambit is perhaps the most creative example of Lennar's moves to cut prices to sell homes, an approach that may help the company weather the downturn better than may of it competitors...But the flip side is that an auction smacks of desperation and may deter already skittish buyers who are worried that the market could further soften."  Personally, I have always been impressed with the management at Lennar, as I have followed their success over the years.    The auction did spike interest in their homes.  One of their salespeople even heard from "...inquiries from as far away as Canada and Hawaii.  Hundreds of shoppers visited the homes in person, including representatives of rival builders doing reconnaissance work, Lennar employees say."   My comment:  Interesting opportunities are being created in an interesting time and Lennar is using every available tool to become a "problem solver" in the present market place.

HOW DOES A TAXPAYER REPORT AN EXCHANGE TO IRS?

That's a good question, because there are really two forms that are involved when handling a Section 1031 tax deferred exchange.  First, the taxpayer would fill out  Form 1099S, which would reflect that the taxpayer is in fact an investor and/or business owner, that is transacting a 1031 exchange.  Additionally, an IRS Form 8824 should be completed as part of the IRS return.  That form is a very complicated one.  As a result of the complexities in Form 8824, Bayview Financial Exchange Services (BFES) has initiated a free process for our clients, where our exchanger (the taxpayer) puts their information into our computer system and our computer fills out the form for them.  Numerous CPA's have referred their clients to BFES so that they can have the availability to our free Form 8824 service.  "Yea for the BFES good guys" is all I have say.

More on Timber

First and foremost, any type real estate may be exchanged for any other type of real estate.  That means a forrest or a tree farm, filled with timber can be exchanged for the Empire State Building, a different type of real estate.  However, should the taxpayer sell the timber under a contract for removal within a limited time period, that is not "like kind" to other real property even, if it is transferred by deed or is otherwise treated under state law as real property.  See TAM 9525002.   Should you wish to use Bayview Financial Exchange Services (BFES) as your Qualified Intermediary, please give me a call toll free at 866-903-1031 and we can discuss your situation more thoroughly.---Stephen Wayner

SUPPLY OF HOMES GROWS

I don't want to be a told you so--but if you check back into my blogs of about a year ago, you will find that I predicted a major slow down in the real estate market--way before the pundits.  Unfortunately, I was correct, as reported this past week by Ivy Zelman, a housing analyst for Credit Suisse:  "Our contacts have officially declared the spring selling season a bust"----additionally she predicts that the rebound expressed by others "...will be pushed out until 2008 at the earliest".    For those of you who have attended one of my seminars, you know I try to present all of the facts--not part of them-- and further I try to emphasize that some "predictors" are extremely slanted in their prognostications, which usually is as a result of who they work for.  For Example, the economists at NAR (National Association of Realtors) predicted, 5 weeks ago, a 2.2% slowdown--while now they confirm a 2.9% slowdown in sales.  Take out your calculators--that a 31.8% difference in what really happened in 5 weeks.    O.K.  I will go out on a limb again.  My prediction is that we will see an additional increased slowdown over the next 6 or 7 months-- and that's a pretty harsh prediction, as we are now coming into home sales strongest months (Mid May through early October).   P.S.  I am not happy about this prediction, as my business relies upon strong sales, not weak sales.

CAN A TAXPAYER TAKE CASH OUT OF THE EXCHANGE?

I get asked that question all the time.   For those bloggers that have been following this 1031 blog for awhile, you might recall a rule, I referenced as the "Napkin Rule".    Part one of this rule (it has 4 parts), specifically states that in order for there to be a tax deferred exchange with no tax due at the the time of the exchange, all proceeds from the sale of the relinquished property must be used toward the purchase of the replacement(replenished) property.  Should the taxpayer take or use some of these proceeds, he will be taxed on those proceeds taken.  Technically,  IRS terms this as the receipt of "boot".       There is a method to avoid  the receipt of "boot".   The investor or owner of the business that is doing the Section 1031 exchange could refinance their Replacement Property,  a "reasonable time" after the exchange transaction has been completed.  See about the 1031 exchange process here.

ARE THERE SOME HOT REAL ESTATE MARKETS STILL IN THE UNITED STATES?

YES THERE ARE!!   The Wall Street Journal (WSJ) reports that:  "Despite a national downturn, some markets that missed the housing boom are thriving."   O.K.  -  I know your next question-- where are those markets?  Houston; Austin, Texas;  Salt Lake City; Boise, Idaho; Seattle, Washington, and in North Carolina both Charlotte and Raleigh.  Each of these cities had at least an appreciation in value of 5.9% or more while the national average of existing median price homes fell 1.9%, according to the National Association of Realtors.   The WSJ pointed out in their article:  "There's no single secret of these cities' apparent success, but many of them missed the housing boom of the past five years.  From 2001 to 2005, annual appreciation in these cities was between 2% and 5%, far lower than the 7% to 12% national average, according to the Office of Federal Housing Enterprise Oversight."   I believe an important point stressed by the article is that "Most of these cities also have one or more strong industries to drive their economies--colleges and technology in Raleigh, banks in Charlotte, energy in Houston and aerospace in Seattle.   And all have education levels above the national average."

ARE THERE DIFFERENT TYPES OF EXCHANGES? THE SIMPLE ANSWER IS YES !!

The Federation of Exchange Accommodators explains:

What are the different types of exchanges?

• Simultaneous Exchange: The exchange of the relinquished property for the replacement property occurs at the same time.

• Delayed Exchange: This is the most common type of exchange. A Delayed Exchange occurs when there is a time gap between the transfer of the Relinquished Property and the acquisition of the Replacement Property. A Delayed Exchange is subject to strict time limits, which are set forth in the Treasury Regulations.

• Build-to-Suit (Improvement or Construction) Exchange: This technique allows the taxpayer to build on, or make improvements to, the replacement property, using the exchange proceeds.

• Reverse Exchange: A situation where the replacement property is acquired prior to transferring the relinquished property. The IRS has offered a safe harbor for reverse exchanges, as outlined in Rev. Proc. 2000-37, effective September 15, 2000. These transactions are sometimes referred to as "parking arrangements" and may also be structured in ways which are outside the safe harbor.

• Personal Property Exchange: Exchanges are not limited to real property. Personal property can also be exchanged for other personal property of like-kind or like-class.

WHAT ARE THE BENEFITS OF EXCHANGING VS. SELLING?

Our trade organization, the Federation of Exchange Accommodators has answered that question as follows:

• A section 1031 exchange is one of the few techniques available to postpone or potentially eliminate taxes due on the sale of qualifying properties.

• By deferring the tax, you have more money available to invest in another property. In effect, you receive an interest free loan from the federal government, in the amount you would have paid in taxes.

• Any gain from depreciation recapture is postponed.

• You can acquire and dispose of properties to reallocate your investment portfolio without paying tax on any gain.

Go to our website:  www.bayview1031.com for a more thorough discussion and our blogs of Jan 19 and the 21st  of 2007 for non-tax reasons to do an exchange.

HOW MUCH TIME DO I HAVE TO IDENTIFY?

I get asked that question all the time and believe it is the hardest part of a Section 1031 exchange.  When a taxpayer does a Section 1031 tax deferred exchange, their intent is to not pay their taxes today, but rather sometime in the future(maybe).   But the hard part is that they only have 45 days from the day they closed to identify what they would like to purchase.  They have many different options on number of properties and values of those properties.    We discussed the types of identifications in a previous Blog--additionally you bloggers may want to proceed to our website--www.bayview1031.com. for a review of these options.  For those that want the truly technical information--it's more specifically described in:  Reg 1.1031(k)-1(b)(2)(i).