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Real Estate Tax FAQs

Convert and Swap - Tax Savings ideas on Selling a Highly Appreciated Home - Let's say you own a principal residence that has appreciated tremendously since you purchased it. You would now like to unload the property and convert your big equity stake into some sort of income-producing investment. Perhaps you are approaching retirement age and want to replace earnings from your job or business. Or you may want to convert your home equity into an asset that generates positive cash flow.

It's a good idea — but be careful of the tax bill. Some of the gain will be tax free if you meet certain qualifications but if the profit on the home is large enough, some of it will also be taxed.

Sale of your Home - Big Tax Savings
Category: Tax and Taxation Law
Location: NJ
Subject:  denial of house revaluation by county tax board

NJ state certified appraiser hired by the township never entered the townhouse to revalue the property. This gave rise to a tax appeal before the county board. Township attorney argued the new assessment is fair based on the comparative sale submitted by me to the tax board. All 7 other townhouses were appraised by walk in and walk around the property - mine was not. I want to appeal to a higher court based on the fact that the appraiser did not follow the law with respect to doing an appraisal thereby declaring the new tax assessment void. Thank you

Category: Tax and Taxation Law
Location: NJ
Subject:  Re: denial of house revaluation by county tax board

An actual inspection inside the property is not necessary for a Municipal Tax Appraisal. The key issue is whether your property is appraised similarly to the other townhouses in your development. Unless your appraisal exceeds 115% of the fair market value, you will not be able to effectively appeal. You should contact a tax attorney to give you the specific advice you need. For further information, please check my website www.taxesq.com. 1/06



So you think your $1 million liability insurance policy is enough to protect you? Not anymore!

A woman who was beaten, raped and robbed at her Marietta, GA., apartment was awarded $9 million in compensatory damages by a Fulton County State Court jury. One premises liability expert, Gilbert H. Deitch, said $9 million was the largest award he had ever heard for an apartment rape case. The sum also floored the lawyer representing the apartment owners. "Not to take anything away from that woman's suffering, but we were shocked at the amount," said defense attorney Charles Richard "Chip" Carson of Atlanta's Nall & Miller. "It was nine or 10 times larger than anything we'd contemplated during trial," added Carson, who made the unusual move in the middle of the trial of admitting the defendant was liable for the attack and focused only on arguing over damages.

Peter A. Law, the plaintiffs counsel, said the circumstances surrounding the attack -- and testimony concerning the apartment complex's security and maintenance -- spurred jurors to award the amount he had recommended during the two-day trial. Even though the attack occurred in Cobb County, GA., the trial was held in Fulton, GA., because the owners and management company are registered there. M.H. v. EPT Management Company and TVO Hampton Village Partners LLP, No. CV-02-vs-034714H (Fult. St. Dec. 14, 2005). The victim was leaving her Hampton Village apartment about 9 p.m. on July 24, 1999, when she was accosted, said Law. "Two guys stick a gun in her back, shoved her in the apartment, and one guy robbed the place while the other one raped her," he said. The two assailants ran away and were never caught, he said.

The conclusion is that all commercial and rental buildings should be held in a Limited Liability Company, Corporation or other limited liability entity.


Converting a Rental Property to a Personal Residence

A client had a rental house that had a passive loss carryforward of $54,506. They decided to move into the home and lived in the house for two years before they sold it. Does the passive loss maintain its  status  and become a deductible passive loss carryover in the year the house  is  sold?

The rental house would be a "former passive activity." If there is other passive income in the year in which the activity became a former passive activity the passive loss carryover (from the current former passive activity) is available to offset such other passive income after such passive loss carryover is reduced by any income from the former passive activity in the current year. See Sec 469(f)(1)(c)
In the case of a rental property converted to a residence, there would not be any current income from the activity which could absorb suspended passive losses carried forward to years prior to the year of sale of the residence.
The suspended losses would be deductible in the year of a taxable disposition of the former rental property, now residence. A sale of a residence is a taxable disposition, even though there would be a gain exclusion if it is a principal residence.
Any excess loss on the disposition of a former passive activity is treated as active not passive.
See IRC  Sec. 469(f) and Sec 469(g).
Is a Forfeited Deposit Ordinary Income or Capital Gain for Tax Purposes?
Question: Client was involved a project that realized $75,000 of income due to the forfeiture of earnest money on a failed land sales transaction. Client kept the deposit when the buyer failed to follow through with the acquisition.   The land was long term capital property and not inventory. Is this Long Term Capital Gain or Ordinary Income?
Answer: A seller who retains both the down payment and the property must treat the forfeited amount as ordinary income. -
Binns, Josephine v. U.S., (1967, CA6) 20 AFTR 2d 5715 , 385 F2d 159 , 67-2
USTC ¶9720 ; Smith, Harold S., (1968) 50 TC 273 , affd(1969, CA9) 24 AFTR
2d 69-6020 , 418 F2d 573 , 70-1 USTC ¶9110 ; Mittleman, Meyer, (1971) 56
TC 171 , affd(1972, CA3) 30 AFTR 2d 72-5574 , 464 F2d 1393 , 72-2 USTC
¶9679 ; Greenleaf, Aaron, (1950) PH TCM ¶50275 , 9 CCH TCM 1024 ; Boatman,
Ralph, (1959) 32 TC 1188 ; Mechanic, Morris, (1960) TC Memo 1960-126 , PH
TCM ¶60126 , 19 CCH TCM 667 ; Melone, Gerald, (1966) 45 TC 501 ;
Handelman, Philip v. Com., (1975, CA2) 35 AFTR 2d 75-637 , 509 F2d 1067 ,
75-1 USTC ¶9208 , revg(1973) TC Memo 1973-57 , PH TCM ¶73057 , 32 CCH TCM
249 ; Ailes, Milton, (1983) TC Memo 1983-388 , PH TCM ¶83388 , 46 CCH TCM
648 .
Home Sale in a Divorce can cause unnecessary income tax. Click here for the full article.
$500k Home Sale Exclusion
If you’ve been living in your home for awhile, you're probably sitting on a tax gold mine. Not only are real estate prices soaring in many areas, the tax law allows a married couple filing jointly to pocket up to $500,000 of gain without owing and federal income taxes from a home sale if they have owned and used the home as a principal residence for two out the previous five years. Unmarried or married taxpayers filing separately can pocket a gain of up to $250,000 without owing any federal income tax.  Click Here for the full article.
Tax Treatment of the sale of utility rights of way and easements.
Question:  Telephone company paid owner $13,000 for right of way and easement through land held for development.   What is the allocation of  basis to such a sale?
Answer: The Cost Basis of the original land is reduced by sales price of the easement.  If the basis is less than sales price of easement, the owner has a Schedule D gain on the difference.  If not, there is no gain on sale of easement.   IRS Pub 551. See Also
Virtualex.com Ronald J. Cappuccio, J.D., LL.M.(Tax) 1800 Chapel Avenue West Suite 128 Cherry Hill, NJ 08002 Phone:(856) 665-2121      Fax: (856) 665-9005 Email: ron@taxesq.com
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