E-BAY AUCTIONS--DO THEY WORK?

    I have never sold anything on E-Bay.  You must think I am one of those nay-sayers--but don't worry about me as I have now seen the light.  My nephew kept prompting me to sell some of our miscellaneous odds and ends that we don't use anymore on E-Bay.  I told him I didn't have the time or knowledge to get involved.  So, he promptly took out his digital camera, shot a couple of pictures and placed one of the items on E-Bay for sale.  It was a wonderful success--we offered the item at $999 and sold it for more than $1500. 

Coincidentally, the day after we sold that item, a friend of mine sent me his newsletter which had an article about selling on E-Bay.  Most of my bloggers are aware that I try to write, every 9th or 10th blog, a consumer oriented blog item that does not relate to Section 1031.  Having said that, the following is an excerpt from my friend's newsletter--the subject of course is putting your items for sale on E-Bay.

"The garage sale season is coming to an end, but if you haven't had a chance to clean out your closets or spare rooms yet, don't fret. One of the most powerful sales is taking place right this minute...actually every minute of every day...on eBay!

The online auction site has quickly become a convenient way for consumers to buy the goods they're looking for--and for sellers to actually make money by auctioning off items they don't need or want. Even though listing and selling items may be easy, the tips below can help you increase the number and size of the bids you receive!

What You See Is What You Get. Believe it or not, many buyers won't even look at your ad if you don't provide a picture of it...they still want to see what they're buying. To increase your number of potential bidders, make sure you include a quality photo for every item you're selling.

How Low Can You Go? It sounds a little counter-intuitive, but the lower you start the bidding, the more money you may get. In fact, starting the bidding at 99 cents--versus a dollar or more--attracts a larger number of bidders. This larger pool has two powerful impacts. First, the more bidders you have, the more new bidders will be drawn to your ad, believing that you've got a red-hot item. Second, many bidders will continue the bidding game once they've begun it, which means they may bid more in their third or fourth round then they would have been willing to offer if you started that high in the first place. Finally, remember that your profit isn't just determined by how much you sell your item for...you also have to consider how much you will have to spend in order to sell it. By listing your item at 99 cents, you'll qualify for the lowest eBay listing fee.

Don't Get Carried Away With Shipping. In order to receive an item, the buyer must pay for shipping in addition to the winning bid amount. Those shipping fees aren't determined by the post office...they're actually determined by you. To make sure you don't drive buyers away, clearly list the shipping fees that apply. And don't get greedy and run up those fees. Smart shoppers will know you're trying to take advantage of them and they'll walk away. So, be clear and be fair!

Consider the Alternatives. Potential buyers will find your ad through searches. To make it easier for them to find it, consider alternative spellings--such as "videogame" and "video game." Also, once buyers find your ad they may have questions. To make sure they can contact you, consider providing a second e-mail address, in case your primary one is only checked while you are at work.

Everybody Loves Options. Some buyers prefer paying for their online purchases through a secure Internet payment service; others prefer using credit cards. Increase the number of bidders interested in your item by offering a variety of payment options.

Know When to Post 'Em and When to Hold 'Em. The day that you post your ad makes a difference. For instance, if you post a 10-day ad, the best day is Thursday. That way, your auction will end on a Sunday...which happens to be a big day for eBay bidding. Plus, your ad will be up for two full weekends, thus increasing your exposure on active bidding days. If you're getting ready to list an item, take a minute to consider how the listing day will impact your sale. It's better to wait a few days and get a better price in the long run, rather than rush into a situation that might mean fewer--and consequently lower--bids."

CONTINUING EDUCATION IS VITAL TO A PROFESSIONAL'S SUCCESS

Recently I attended the annual Georgia Association of Realtors (GAR) Convention.   At the convention, they handed out a page from their Realtor magazine which said:  " Abraham Lincoln is attributed as having said:  If I had eight hours to chop down a tree, I'd spend the first six sharpening my ax...Like Lincoln, you too should strive to keep your ax sharpened. 

One of the best ways to accomplish that goal is to take courses relevant to your profession. "  We all are aware that the general public expects their "professionals" to have "special" knowledge, gained through appropriate education and experience.  Most states require their "professionals", Realtors, Attorneys and CPAs, to obtain a certain number of continuing education (CE) credits per year.  As GAR says, these courses keep the professional "...aware of what you know and do not know about the industry in which you practice.  It is the latter that will keep you growing and improving." 

We at Bayview Financial Exchange Services (BFES) agree and as a result are qualified and in fact give continuing education classes on Section 1031 exchanges to Realtors, Attorneys and CPAs all around the country.  As I write this blog, I am preparing to leave to go to NYC, where we are speaking at the Office and Industrial Realtors Convention, from there I fly to Atlanta, to give a course to the "financial" industry and from there I'm off to Chicago, to give a CE course to Attorney's in Illinois.

If you are a professional and wish for us to give a CE course to you and your office, just give us a call, toll free at 866-903-1031, or go to our website: www.bayview1031.com for more information.  If you are not a "professional" but would like more information on Section 1031, you too can go to our website for more information.   You will probably also want to attend one of our free 1 hour long webinars.  Information for dates and times for the webinars is on our website (www.bayview1031.com).

IS IT DIFFICULT TO DO A 1031 EXCHANGE?

That's a question Bayview1031 gets asked at least 10 to 15 times a week.   

The answer is YES and NO. 

It can be difficult if you have someone advising or working with you that really does not have the experience in handling 1031 exchanges.  It can be an easy experience, if you use a Qualified Intermediary(QI) who is knowledgeable and experienced in handling 1031 exchanges. 

That's one of the wonderful things about working at Bayview1031.  We prepare 8 documents when you sell your relinquished property and prepare 7 documents when you purchase your replacement property.  We have it down to a science.   With our Exchange Coordinators(EC), all of whom had to be real estate paralegals for at least 5 years, before we would hire them for training as EC's, we are able to literally have the documentation PDF'ed to the closing agent within 20 minutes of opening the file.  It makes my life as the "Boss" a lot simpler.   Go back and look at our blog on how to select a QI or go to our website at: www.bayview1031.com for the information on how to select a QI.

TIC’S ARE A CHANGING—AND I’M NOT TALKING ABOUT THINGS THAT MAKE YOU SCRATCH

I wrote an article that appeared in the May 2005 issue of Southeast Real Estate Business on the subject of TIC’s.  Let me quote myself:  “TIC stands for Tenancy-in-Common. 

When I went to law school some 35 years ago, Tenancy-in Common was defined as an ownership of real estate between two or more parties (or tenants).  In 2002, Internal Revenue Procedure (Rev Proc.) 2002-22 set out guidelines for a new definition of a Tenancy-in-Common.  The IRS redefined the shared ownership of real estate not as a partnership, but rather as an ownership in an “undivided fractional interest.”…The IRS defines a TIC as real estate, but defers to individual states’ definitions of real estate…However, the Securities and Exchange Commission (SEC) defines the TIC structure as a security because it produces income through the efforts of others.”  As a result we have two different federal governmental agencies with conflicting definitions.

Recently, TICA (Tenant-in-Common Association) agreed with the SEC that for non-tax purposes, a TIC is a security.  There were a couple of sponsors (the party who puts the TIC deal together—very much like what we used to refer to as a “syndicator”) that were holding out that their transactions were only real estate—not securities.

It looks like TCIA took the correct position, because now the SEC has had private meetings with one or more of those sponsors that had taken the position their TIC’s were only real estate.   The result according to an article written by Mark Heschmeyer is : “With the future treatment of TIC interests in doubt, one firm that had been selling tenant-in-common real estate since 2003, confirmed it will voluntarily refrain from initiating any new offerings of its TIC income-producing deals.”  I’ll add to Mark’s article by saying that I have been told that that particular “sponsor” has put a hold on the sale of any and all of its existing TIC transactions that it held out as real estate and not as a security.

So what do I see as the future of the TIC industry?---Future growth, but TIC’s will be sold as securities—with one little wrinkle—I believe that the Securities and Exchange Commission will allow their securities broker dealers to pay a referral fee to any real estate agent that has referred the purchaser to the securities broker/dealer.  That way the real estate agent can receive a fee (even though they don’t have a securities broker dealer license) and not feel like they have been left out of the transaction.   NAR (National Association of Realtors) has been pushing for this type of resolution for more than 2 years.  Only the future will tell.  As in the past, I will keep you current on the issues that affect the 1031 industry.

GOODWILL--CAN I EXCHANGE IT?

Recently, one of our taxpayers informed us that he was selling a business and the real estate the business was located in.   Unfortunately in this transaction, the contract was fully executed before the taxpayer contacted us.  The parties who negotiated the contract had allocated a large portion of the sales price to "goodwill".   

IRS Regulation Section 1.1031(a)-2(c)(2) states that the going concern of a business or more specifically, the goodwill of the business, is so inherently unique, that it is not "like kind". 

In order to have a valid Section 1031 Exchange, the property relinquished must be "like kind" to the property replaced.   For Section 1031 and smart tax planning purposes, the amount of "goodwill" should have been allocated as a very very small portion of the sales price.   They could have characterized these items as franchise rights, permits, leasehold interests, and licenses, all of which have been determined by IRS to be  "like kind".   

To reinforce this message, as recently as November 5, 2007, IRS published FAA 20074401F (Field Attorney Advice), ruling that newspaper mastheads, advertiser accounts and subscriber accounts cannot be exchanged for other newspaper mastheads, advertiser accounts and subscriber accounts.   

This decision is a non-binding one, but as has been confirmed with my fellow brethren in the FEA, certainly indicates that IRS is taking a more expansive view and hard nose approach as to what constitutes "goodwill".

WHAT IF I DON'T SPEND ALL OF THE PROCEEDS? WHAT HAPPENS?

When a taxpayer does a 1031 tax deferred exchange, if they desire to defer payment of the capital gains taxes, they are required to use all of the closing proceeds towards the purchase of the replacement property.   Additionally, they are required, to purchase a property(ies) of equal value or more, should they not wish to pay taxes at this point in time.  Both of these rules are part of the "Napkin Rule" which we discussed about 7 or 8 months ago in this blog.  Go to www.bayview1031.com and look up the Napkin Rule in the resource center for a more thorough discussion. 

But what were to happen if the taxpayer didn't use all of the proceeds from the sale of the relinquished property?   The amount of funds that are not reinvested will be subject to capital gains and depreciation recapture taxes.  The amount invested in the replacement property, of course will be tax-deferred.  So you could have a situation where the taxpayer did not use all of the proceeds to purchase a replacement property(those proceeds would be taxed), with the remaining funds used to purchase the replacement property (these funds would be tax deferred).

BACKDATING IDENTIFICATIONS

One of our prospective clients asked a provoking question.  After he closes on the sale of his relinquished property in a Section 1031 exchange,  he realizes that he only has 45 days to identify what he would like to purchase as his replacement property(ies).   He read in our blog that the 45 day identification period has no extensions (there are extensions, but only when given by the President of the United States, generally for those affected by disasters).  What he asked was could he fudge the date, in other words, could he give us an identification statement after the 45 days period had expired, but date it prior to the 45 day deadline? 

The answer is NO HE CAN'T !!  He would be committing criminal tax fraud.   Bayview1031 and most other reputable Qualified Intermediaries will not be part of criminal fraud.  Additionally, that type of fraudulent act would open up the QI to losing its Qualified Intermediary status with IRS.  For the protection of all of our clients, identification statements are time stamped.  This protects our clients, should there be an audit by IRS. 

TIMING IS EVERYTHING...ESPECIALLY WHEN IT COMES TO SAVING ON YOUR TAXES AND ON YOUR PURCHASES IN THE FUTURE!!

Most of my bloggers are aware that Section 1031 defers the payment of taxes on the profits made from investment property or property used in a trade or business. The deferral of today’s taxes along with good estate planning resulting in the non-payment of any taxes are the foremost reasons for doing a Section 1031 tax deferred exchange. There are of course other advantages in doing a 1031 exchange, such as consolidation of assets, diversification of assets, obtaining additional depreciation, building up equity, etc (for more on those issues go to www.bayview1031.com). I am posting a portion of a friend’s newsletter that I thought might be of interest to all ya’ll (I’m picking up my father-in-laws southern drawl). It has nothing to do with Section 1031.

 

“Did you know that the fiscal year for Japanese companies ends in March? Do you care? You SHOULD...if you want the best deal on a new television for your home theater system.

 

That's because new models and products are scheduled for release at the beginning of the new fiscal year--which for Japanese electronics companies is April. And the release of the new models means...you guessed it...huge discounts on the previous year's models. So if you're shopping for a television, stereo or other electronics, your best bet is to watch for sales in spring.

 Looking for Even More Savings?

 You can save on just about every item you need...if you know what season or day of the week to purchase it. Below are some tips to help you save the most on your shopping list.

Airplane Tickets: Your best chance for saving is Wednesday morning. That's because airlines introduce their savings over the weekend and during the first few days of the week, subtle price wars begin. By early Wednesday, the savings have usually hit their peak...and there are still plenty of seats left for you to capitalize on.

 Furniture: Unless you need to replace your sofa or dining room table right away, those "HUGE" weekend and holiday sales aren't the best time to buy. Instead, you should plan ahead and do your furniture shopping in October or April. That's when new lines of furniture are unveiled at industry trade shows...which means you can save big on the in-store stock that needs to be sold before the new inventory takes a seat on the showroom floor.

 Cars: You probably already know that you can save on car purchases in early fall when new models are released and the current models go on sale. And you may also know that your best chance to negotiate a better price is at the end of a month when car dealers need to make their monthly quotas. But did you know you can drive home a great deal early in the week, especially during the morning? At that time, the dealerships aren't overflowing with shoppers like they are on the weekend, so you'll get more personalized attention. Plus, salespeople are more likely to negotiate when they don't have three or four other buyers waiting in the wings to pay full price.

 Gas: We've all seen gas prices jump as travel weekends approach. It's a common occurrence...but it can be avoided. Whether you're planning to travel or not, the best time to top-off your tank is early Thursday morning. Then, watch the prices rise and calculate your savings!

 Toys: The winter holiday season is a no-brainer for toy sales. But you can also save some serious dollars at the end of summer. Think about it...department stores only have so much room to store their merchandise. And by the end of the summer, they're starting to stock up for the big holiday push...which means they have to get rid of their current inventory of fun. So for savings of 60 percent off and more, try toy shopping as summer winds down in August.

 Clothing: By the time the weekend rolls around, just about every dressing room is filled...and the best deals have been picked over already. Why? It's simple. With the large number of special promotions to be marked and shelves to be stocked, most clothing stores get started early. And savvy shoppers, like you, can get the best deals and the best selection by Thursday evenings. As an added bonus, the stores, dressing rooms, and checkout lines aren't nearly as crowded--so you save on stress too!

 The moral of the story—just as you plan your tax deferral strategies on a Section 1031 exchange by hiring an independent qualified intermediary (i.e. Bayview1031), you should also plan ahead on your purchases—in both cases you'll be rewarded!

Are you an Investor or a Dealer in Real Estate?

Stock in trade and property held for resale are specifically barred from §1031 qualification.

Historically, there have been numerous cases that analyze whether a pattern of sales made by a taxpayer indicates that the taxpayer is holding his or her real property as a dealer, developer, or investor. In the event that the taxpayer’s history of sales, subdividing or developing property has crossed the line from being an investment activity and has entered into the territory of the business of land development, then his attempted 1031 exchanges will fail to qualify.

In effect, the nature of his or her real estate holdings will have morphed from investment property to inventory to be sold. Existing owners or nonprofessional investors whose activities begin to resemble those of traditional dealers in real estate can be at risk of classification as developers if they begin to act like developers.

The following activities are some of the many that have been considered by courts to determine whether the seller is classified as a dealer or whether he is entitled to investor status:

(1) the original intent of the taxpayer when he purchased the property; (2) the length of time that the property was held; (3) whether the taxpayer has engaged in developer-dealer activities in the past; (4) the use to which the property was placed while it was held by the taxpayer; (5) whether a change of circumstances has occurred with respect to the property or the taxpayer’s economic or personal situation; (6) the extent of improvements on the property, and the time that such improvements were implemented; (7) whether the taxpayer has entered into a joint venture or similar agreement with a developer-dealer; (8) whether the property was leased to a tenant, and the length and terms of such lease; (9) whether the replacement property is disposed of, divided, or the taxpayer otherwise demonstrates that his or her intent in acquiring the replacement property is for purposes other than investment or business use.  For more  information on various 1031 subjects, go to the resource section at our website.