Monthly Archives: May 2017

Some Housewarming Gifts For New Homebuyers

Yes, a plant is a considerate gift for a friend or family member who just moved into a new house. But you know what’s better? A whole lot of stuff. If you want to come up with a thoughtful, useful, and memorable gift for a new homebuyer, we’ve got some ideas.

1. Housecleaning services

Presumably, the house your loved ones are moving into is nice and clean when the moving truck arrives. But what is it going to look like after they’ve been emptying and breaking down boxes and walking in and out of every room multiple times? A certificate for housecleaning services a few days or a week out from their move-in will be a much-appreciated gift.

2. A home-cooked meal

In all the chaos of packing and moving and unpacking, it can be easy to forget to do “normal” daily things… like actually eat a meal. Show up with dinner and you’ll be a superstar. And don’t forget to bring serving pieces, disposable dishes and silverware, and a package of napkins since the kitchen boxes may not be unpacked yet.

3. Groceries

Or, show up with groceries and stock the fridge right after everything is moved in and the electricity is turned on. Getting to the market may be a priority for them, but with so many other conflicting priorities, it may have fallen to the bottom of a long list.

4. A meal kit delivery service

If your new homebuyer friends or family members are busy professionals and/or parents, they’ll undoubtedly appreciate being able to simplify dinner. Blue Apron, Plated, and Hello Fresh all offer their own version of “a freshly prepped meal-in-a-box,” as Forbes calls them, and many of them have introductory specials you can get in on.

5. Help with unpacking

There’s nothing like the gift of time when it feels like the moving-out and moving-in process is never-ending.

6. Find landscapers

Super organized people may have already taken care of finding a landscaper in their new neighborhood, but, for many others, this is one of those things that can fall through the cracks, and the next thing you know, the HOA is sending you notices about your overgrown lawn. You can be a great friend by helping to find a landscaping service in their new neighborhood and setting up an appointment for the lawn to be cut just before or after the move, as needed.

7. Offer babysitting services

Sometimes, just making sure the kids are taken care of and entertained is all someone needs to get through a stressful event like moving.

8. A move-in care package

Hit Target and put together an “essentials” bag full of things you know will come in handy the first few days/nights in the house. You can personalize to your friends’ and family’s tastes and include things like: a bottle of wine and disposable glasses, high-protein snacks like nuts and bars, toilet paper, Ibuprofin, and light bulbs and batteries.

9. A cleaning basket

A package of Swiffer floor cleaners. A box of Mr. Clean Magic Erasers. A new broom. Dish and laundry detergent. A toilet plunger. A couple of bottles of cleaning spray and a few rolls of paper towels. They’re all the cleaning items your loved ones may not have thought to buy or bring with them (or may not know which box they’re in, if they did).

10. Gift cards

Not sure if you should go this route because it might feel impersonal? A gift card to Target, Home Depot, the local supermarket, or a hot new restaurant in their new neighborhood will always be appreciated, especially when those unexpected costs of moving to a new place start to catch up with your friends.

Know More About A Valuable Alternative To A Home Sale

Congress is currently talking tax reform. Two very important real estate benefits are on the so-called “chopping block”, either to be completely eliminated or significantly curtailed.

It is doubtful that the home owner exclusion of up to $500,000 (or $250,000 if you file a single tax return) of profit will be impacted; there are too many homeowner voters who will forcefully object. But investors do not have the same strong lobbyist who can make the case for preserving the “like kind” exchange. So if you have an investment property, now might be the time to consider doing an exchange.

Residential homeowners have a number of tax benefits, the most important of which is the exclusion of up to $500,000 (or $250,000 if you file a single tax return) profit made on the sale of your principal residence. But real estate investors — large and small — still have to pay capital gains tax when they sell their investments. And since most investors depreciated their properties over a number of years, the capital gains tax can be quite large.

There is a way of deferring payment of this tax, and it is known as a Like-Kind Exchange under Section 1031 of the Internal Revenue Code. In my opinion, these exchange provisions are still an important tool for any real estate investor.

The exchange process is not a “tax free” device, although people refer to it as a “tax-free exchange.” It is also called a “Starker exchange” or a “deferred exchange.” It will not relieve you from the ultimate obligation to pay the capital gains tax. It will, however, allow you to defer paying that tax until you sell your last investment property — or you die.

The rules are complex, but here is a general overview of the process.

Section 1031 permits a delay (non-recognition) of gain only if the following conditions are met:

First, the property transferred (called by the IRS the “relinquished property”) and the exchange property (“replacement property”) must be “property held for productive use in trade, in business or for investment.” Neither property in this exchange can be your principal residence, unless you have abandoned it as your personal house.

Second, there must be an exchange; the IRS wants to ensure that a transaction called an exchange is not really a sale and a subsequent purchase.

Third, the replacement property must be of “like kind.” The courts have given a very broad definition to this concept. As a general rule, all real estate is considered “like kind” with all other real estate. Thus, a condominium unit can be swapped for an office building, a single family home for raw land, or a farm for commercial or industrial property.

Once you meet these tests, it is important that you determine the tax consequences. If you do a like-kind exchange, your profit will be deferred until you sell the replacement property. However, it must be noted that the cost basis of the new property in most cases will be the basis of the old property. Discuss this with your accountant to determine whether the savings by using the like-kind exchange will make up for the lower cost basis on your new property. And discuss also whether you might be better off selling the property, biting the bullet and paying the tax, but not have to be a landlord again.

The traditional, classic exchange (A and B swap properties) rarely works. Not everyone is able to find replacement property before they sell their own property. In a case involving a man named Mr. Starker, the court held that the exchange does not have to be simultaneous.

Congress did not like this open-ended interpretation, and in 1984, two major limitations were imposed on the Starker (non-simultaneous) exchange.

First, the replacement property must be identified before the 45th day after the day on which the original (relinquished) property is transferred.

Second, the replacement property must be purchased no later than 180 days after the taxpayer transfers his original property, or the due date (with any extension) of the taxpayer’s return of the tax imposed for the year in which the transfer is made. These are very important time limitations, which should be noted on your calendar when you first enter into a 1031 exchange.

In 1989, Congress added two additional technical restrictions. First, property in the United States cannot be exchanged for property outside the United States.

Second, if property received in a like-kind exchange between related persons is disposed of within two years after the date of the last transfer, the original exchange will not qualify for non-recognition of gain.

In May of 1991, the Internal Revenue Service adopted final regulations which clarified many of the issues.

This column cannot analyze all of these regulations. The following, however, will highlight some of the major issues:

1. Identification of the replacement property within 45 days. According to the IRS, the taxpayer may identify more than one property as replacement property. However, the maximum number of replacement properties that the taxpayer may identify is either three properties of any fair market value, or any larger number as long as their aggregate fair market value does not exceed 200% of the aggregate fair market value of all of the relinquished properties.

Furthermore, the replacement property or properties must be unambiguously described in a written document. According to the IRS, real property must be described by a legal description, street address or distinguishable name (e.g., The Camelot Apartment Building).”

2. Who is the neutral party? Conceptually, the relinquished property is sold, and the sales proceeds are held in escrow by a neutral party, until the replacement property is obtained. Generally, an intermediary or escrow agent is involved in the transaction. In order to make absolutely sure the taxpayer does not have control or access to these funds during this interim period, the IRS requires that this agent cannot be the taxpayer or a related party. The holder of the escrow account can be an attorney or a broker engaged primarily to facilitate the exchange.

3. Interest on the exchange proceeds. One of the underlying concepts of a successful 1031 exchange is the absolute requirement that not one penny of the sales proceeds be available to the seller of the relinquished property under any circumstances unless the transactions do not take place.

Generally, the sales proceeds are placed in escrow with a neutral third party. Since these proceeds may not be used for the purchase of the replacement property for up to 180 days, the amount of interest earned can be significant — or at least it used to be until banks starting paying pennies on our savings accounts.

Surprisingly, the Internal Revenue Service permitted the taxpayer to earn interest — referred to as “growth factor” — on these escrowed funds. Any such interest to the taxpayer has to be reported as earned income. Once the replacement property is obtained by the exchanger, the interest can either be used for the purchase of that property, or paid directly to the exchanger.

The rules are quite complex, and you must seek both legal and tax accounting advice before you enter into any like-kind exchange transaction.

Know More About A Condominium

Condos were once thought of as homes that attracted singles or couples, often without children. But today, condos are growing in popularity and attracting families of all sizes.

Condos can be an excellent choice for the right buyers. Here are a few things that should considered before purchasing a condo. Most buyers start with the condo itself. That may be a good place to begin but, before they buy, buyers should also consider other factors outside of the condo.

Some developers are building condos that have a look and feel like single-family homes. These modern condos have great rooms and open, flowing floor plans that look and feel like a single-family home rather than an apartment or condo.

One of the major attractions of condos is the low maintenance. The community area is maintained by an association funded by the dues that homeowners pay into it.

That’s why buyers’ first consideration should be to explore the development and make sure they like the look and feel of the complex and surrounding community. There are codes and restrictions, often referred to as CC&Rs (covenants, codes, and restrictions) that buyers will have to abide by once they purchase a condo. Buyers should ask to review them before making an offer to purchase a condo. These regulations help ensure that the community maintains its general appearance and any necessary repairs of the external areas.

Review the association’s budget. It may be necessary to get the seller to provide this information because it may not be released to a non-owner who is only a potential buyer. However, in considering buying into a development, it’s almost like going into business with the neighbors in the complex. It’s important to make sure that the association is running properly and has enough of a reserve for necessary expenses and maintenance. The budget and CC&Rs will give an idea about how stable the association is and if increases in the homeowners’ association dues are likely each year.

Find out how many owners in the development are delinquent on their dues. A condo complex that has a high level of delinquencies can cause problems for buyers when it comes time to get a loan or sell the condo. Some loans are not approved if delinquency rates are higher than 15 percent.

Review the minutes from the association’s board meetings. They will reveal the day-to-day issues that occur each month and give an indication of how the development is run. For instance, lots of complaints and filings about noisy residents, loud parties, or dog droppings on the lawn reveal potential problems with neighbors. The minutes will also reveal if the development is engaged in any lawsuits.

Understand what your responsibilities are for the upkeep of the condo. Find out what the association takes care of and what the homeowners have to maintain. Look at the association’s property management team and see how many times the association has changed management companies. Find out why. This will may reveal how responsive the association will be should residents need its assistance.

Ultimately, buyers need to ensure that when they purchase a condo they’re not buying into any legal battles the association is in the middle of and that they will be able to live in their condo the way they want. Study the CC&Rs and do due diligence before buying.