2010 Year in Residential Real Estate
2010 was quite an up and down year for residential real estate. Home Sales were spurred on in the first half of the year by the homebuyer tax credit but through October, most hope for a 2011 trough in housing prices seems to have been pushed out to 2012. A glut of foreclosures still have not been released on the market and while housing starts are down, overall inventories remain very high. Most experts are predicting additional price declines between 6% – 9% for 2011. Interest rate predictions for 2011 have been somewhat mixed. Some believe rates will remain below 5% while the others believe rates will be over 5% by the end of 2011. The homebuyinginstitute.com summarizes various predictions from economists and real estate companies on a continually updating list. Continue reading »
Using Personal Guaranty Companies to Limit Exposure
If you are a real estate developer with personal guarantees, there may be better ways to secure financing while protecting your personal assets. It is common that banks require developers to personally guarantee loans in order to provide financing. This demonstrates the commitment of the developer to the project, provides the bank with leverage in negotiating a workout of there is a default and limits the possibility the developer will walk away from the project. It is not common for developers with multiple developments to often have multiple personal guarantees. When considering estate and succession planning, it can be difficult to assess the risk of these personal guarantees.
IRS Audits of 403(b) Plans
What triggers an audit? Plans are typically selected from filed returns such as Form 5500s, but for plans that don’t have to file returns, the IRS downloads data from W-2 employer’s report and look for things such as exceeding contribution limits. However, the agency often randomly selects plans among different types of sponsors and different industries. Daniel S. Gardner, Senior Employee Plan Specialist for Tax Exempt and Government Entities, Internal Revenue Service, described what the IRS is looking for – and has found – when auditing 403(b) plans. Continue reading »
Tax Relief Act Passes Congress, Signed by the President
On Wednesday, Dec. 15th, the Senate passed the “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010” (“2010 Tax Relief Act” or “Act”) and the House of Representatives passed it the next evening. Continue reading »
President Obama Announces Framework for Bipartisan Agreement on Extension of Tax Cuts
President Obama announced on Monday, December 6th that he had reached a framework agreement with Republican leaders in Congress regarding the extension of the individual income tax cuts. Recent media reports indicate that White House officials will try to persuade Democrats to support the framework agreement, but due to resistance from his party, President Obama may need to rely heavily on Republican support to move the proposal through Congress.
The Difference between an audit, review and a compilation
Businesses frequently do not consider if they are getting the appropriate level of financial statement services. Most often, business default to audits because that is what they are familiar with. But accountants provide three levels of financial statement services, two of which are most often forgotten. Compilations and reviews are cheaper alternatives to audits that many businesses do not take advantage of properly. Part of this may come from not properly understanding what each of these services entail. Understanding the level of services can help businesses select the best match of services for their needs and the needs of their financial statement users. Continue reading »
Playing the Income Tax Guessing Game
Who is ready to pay more taxes in 2011? The income tax cuts that were enacted in 2001 and 2003 under President Bush expire on December 31, 2010. Unless Congress acts now, which means the Democrats and Republicans have to agree on what should be extended and what can expire, everything resets to the tax law in effect as of January 1, 2001. The following is a summary of some of those changes and actions you may want to take to avoid the changes; any actions should be discussed with your tax advisor. Note that both sides want some or all of these expiring provisions extended but no one knows what the future (of tax) holds.
- Higher tax rates: Highest tax brackets increase with a maximum rate of 39.6% instead of current 35%. Planning – If you think you will be affected by the return of higher rates, consider accelerating income into 2010 or deferring deductions.
- The Marriage Penalty returns: Tax brackets change, affecting married returns with taxable income around $125,000. The reason for this change is that the current brackets eliminate the Marriage Penalty by making them 200% of a single person’s tax bracket. The old law was approximately a 67% increase.
- Capital gains tax increases: The current 15% rate for long-term gains increases to 20% – a 1/3rd increase in the tax rate. Planning – Now may be a good time to recognize some of those gains in stocks you have been holding. If you want to maintain your investments, you can sell for a gain and repurchase the same stock; the “wash sale” rule only applies to losses.
- Dividends: Most dividends on stock have been taxed at capital gains rates (15%) since 2003 but will be taxed as ordinary income in 2011 – with a maximum rate of 39.6%. Planning – If you own a privately-held taxable corporation (not an S corporation), consider paying a dividend by year end. If the company still needs those funds, you can lend back the net-of-tax dividend.
- Alternative Minimum Tax (AMT): Every year for the past number of years, Congress has passed a one-year patch so that AMT does not affect a large number of “middle-class” taxpayers. This will have to be addressed in 2010 and again in 2011 or millions of taxpayers will find they are subject to additional taxes.
“When will we know the answers so that we can plan efficiently for income taxes?” That is an excellent question. Some pundits believe that the lame-duck Congress will address this after the November elections. Others believe that it won’t be addressed until a new Congress convenes in January 2011 and any changes will be effective as of January 1, 2011. Stay tuned to this blog for information when (if?) new tax legislation is passed.
Save Some Tax on Lease Terminations
Did you know that not all lease related income has to be ordinary? One would always expect that a payment from a tenant to a landlord would be treated as ordinary income under the Internal Revenue Code. Until 1997, that would have been the IRS’ expectation as well.
In 1997, Congress added a very short section to the Code – 1234A. In plain English, this section states that a gain (or loss) attributable to the “cancellation, lapse, expiration, or other termination” of a lease for real property will “be treated as a gain or loss from the sale of a capital asset.”
Are You Ready to Fair Value Your Lease Obligation?
Banks, lessees and lessors should be aware of the huge changes on the horizon that could dramtically change the terms of leases, loan covenants and the overall financial statement presentation. With the ongoing push to converge U.S. generally accepted accounting principles (GAAP) with International Financial Reporting Standards (IFRS), there are sure to be changes in long-standing GAAP principles. One of the most debated and contested changes on the horizon is the treatment of accounting for leases. Under current U.S. GAAP, operating leases such as building and equipment leases, are treated as an expense for the lessee (or revenue for lessor) over the term of the lease. Modifications of principles related to accounting for leases will drastically change the current method. These changes are expected to be enacted in 2013. All of the details have yet to be ironed out, however this article “New Accounting Rules Ruffle the Leasing Market”, published in the New York Times on June 22, 2010 provides a detailed overview of the expected changes. One interesting side effect noted on the New York Times article was that “this may cause more companies to buy their offices and drive down demand for lease space.”
Are You Interested in an SBA Loan? Good News Could Be Coming Your Way
Small business owners, some minor relief may be in sight in the form of government loans. On July 23, 2010, the Small Business Lending Fund Act cleared a key senate vote to end debate and move forward. The bill includes business tax break and enhancements to the Small Business Administration (SBA) loan programs. The House has already passed a version of the bill. The Fund would invest in small banks (less than $10 billion in assets) by purchasing preferred stock. The stock would charge interest rates ranging from 1% to 7% depending on how much Continue reading »
