I posted an article last week regarding the Structured Sale tax deferral strategy.  I received a number of private emails requesting more information, including more information about the potential downside and/or disadvantages of implementing a Structured Sale strategy.  These are great questions, of course, and an important part of your due diligence process. 

Disadvantages of the Structured Sale Strategy

The first (and major) disadvantage is that the Internal Revenue Service has not issued any guidance or rulings related to the Structured Sale at this point in time. 

The second is that Structured Sales are drafted pursuant to Section 453 of the Internal Revenue Code, which means that certain types of depreciation recapture are not deferred.  Essentially, excess depreciation taken over the straight line method of depreciation cannot be deferred and would be taxed in the year the real estate was sold.  This is just like an installment sale note or seller carry back note would be taxed.

Finally, any amount of mortgage pay-off in excess of your adjusted cost basis ("mortgage over basis") can not be deferred. 

Other Miscellaneous Disadvantages

The Structured Sale is a more complicated income tax structure than with other income tax planning strategies such as the 1031 exchange.  Taxpayers using the Structured Sale must follow the specific requirements imposed by Section 453 of the Treasury Regulations.  Fees to structure the Structured Sale are often much higher than other income tax planning strategies such as a 1031 exchange. 

Exeter 1031 Exchange Services, LLC announced today that Roberto M. Romero-Perez joined its 1031 Exchange Services Group as a Senior 1031 Exchange Consultant. Roberto M. Romero-Perez is based in his Chicago, Illinois Affiliate Office.

Roberto M. Romero-Perez is a licensed attorney in Illinois with more than 20 years of professional experience in the field of 1031 Exchanges, real estate, estate planning and financial services analysis and operations.

He formerly served as an in-house attorney for Investment Property Exchange Services, Inc. (IPX1031) where he structured complex 1031 Exchange transactions, including real and personal property tax-deferred exchange transactions, and presented continuing professional education courses for accountants, attorneys, financial planners, and real estate professionals.

"Roberto M. Romero-Perez is a tremendous addition to our ever expanding team of 1031 Exchange professionals and our ever growing 1031 exchange national branch and affiliate offices network.  Roberto M. Romero-Perez has exceptional technical knowledge and expertise in 1031 Exchanges and can assist clients with the more complex 1031 Exchange transactions.  And, Roberto's ability to present this complex subject to clients and their advisors will be a huge part of our continued growth and success in the Midwest region, especially in the Chicago, Illinois area" said William L. Exeter, president and chief executive officer, Exeter 1031 Exchange Services, LLC.

Go To Webinar Registrations Are Required

Click here to register for this GO Zone Investment Tax Savings webinar.

Real estate investors often defer payment of their capital gain and depreciation recapture taxes through a 1031 Exchange.  The more difficult decision is what, where and how to buy replacement properties during these challenging times.  You might want to consider taking advantage of available tax incentives by investing in the GO Zone.

Gulf Opportunity Zone Act of 2005 ("GO Zone")

The passage of the Gulf Opportunity Zone Act of 2005, and the subsequent extension passed in 2010, provides investors with significant tax benefits, including bonus depreciation, for real estate acquired within the GO Zone designated areas.

"Learn About Bonus Depreciation by Investing in GO Zone Properties"

• Learn how you can receive bonus depreciation, rehabilitation credit and demolition deductions by investing in real estate located within the GO Zone.
• Understand the how and why of the Gulf Opportunity Zone Act of 2005.
• Learn how you can 1031 Exchange into GO Zone investment properties.
• Hear how the Hanover Companies can help you invest throughout the GO Zone territory with their GO Zone Real Estate Opportunities.

The Gulf Opportunity Zone Act of 2005 (H.R. Bill 4440 was passed by Congress on December 16, 2005, and was signed into law by President Bush on December 21, 2005), and further extended in 2010, set in place certain income tax incentives and bond provisions that are designed to help rebuild the local and regional economies that were devastated by hurricanes Katrina and Rita. This stimulus Act is most commonly referred to as the "GO Zone Act."

Exeter 1031 Exchange Services, LLC is pleased to have The Hanover Companies present their webinar on GO Zone investment opportunities as part of The Exeter Edge^TM Webinar Series.  The Hanover Companies have been investing in and developing real estate for over 40 years, and have been active in GO Zone investing from the beginning. 

Who Should Attend This Webinar? 

Anyone interested in learning more about the tax benefits such as bonus depreciation available to investors by investing in real estate within the GO Zone should attend this webinar, including investment property owners (taxpayers/investors), accountants, attorneys, financial planners and real estate agents and brokers (Realtors©).

Host

William L. Exeter
President and Chief Executive Officer
Exeter 1031 Exchange Services, LLC

Presenter

Brett Immel
Senior Partner
Hanover Companies
Chicago Office

Date and Time

Wednesday, April 27, 2011
6:00 PM to 7:00 PM PDT
Please login at least five (5) minutes prior to start time

Go To Webinar Registrations Are Required

Click here to register for this GO Zone Investment Tax Benefits webinar.

Experience an incredible eight hours exploring the latest in investment opportunities, insights into what may be the future of the financial markets and our country, strategies to potentially reduce taxes and increase cash flow, and much, much more. 

Over fourteen (14) speakers will cover topics such as:

• Keynote Speaker: Which Way is Our Economy Really Headed
• Using self-directed IRAs to buy real estate and real estate related assets
• Acquire real estate confidentially and privately through Land Trusts
• Exchange traded funds (ETFs)
• The benefits of demographic investing
• 7 legal ways to reduce your tax bill
• Estate taxes in 2011 and beyond
• Creative real estate strategies  for today's real estate market
• Enhanced strategies for investing in multi-family real estate
• Long-term care
• High dividend quality stock strategy
• Seeking cash flow & cash flow alternatives
• Long term cash flow with sale-leasebacks
• and more, much more...

There is no charge to attend the symposium.  The hotel charges $12.00 for parking.

The Pasadena Economic Symposium

We set-up The 1031 Exchange Group on LinkedIN specifically to help investors, their advisors and other real estate related professionals share ideas, strategies, problems, solutions, failures and successes with each other.  You are invited to join if you have any interest in the 1031 Exchange industry.

This is an educational forum designed to help investors.  It is not a forum to promote services, products or offerings or real estate listings. 

Learn what to invest in today's market. 

Learn how to balance safety and great returns. 

Discussion will include top performing REITs (Real Estate Investment Trusts), 1031 Tax Deferred Exchanges, stock market strategies for preserving wealth, and using self-directed IRAs. 

Learn more here

The Gulf Opportunity Zone Act of 2005, generally referred to as the GO Zone Act, provided certain tax incentives, including bonus depreciation, to investors that acquire newly built and qualifying homes within the GO Zone designated areas. 

GO Zone Deadline Extended

The Tax Act enacted at the last minute last year had some terrific news for those who are interested in investing in investment property located within the GO Zone area. 

The previously extended GO Zone deadline was December 31, 2010.  However, this deadline for investors to take advantage of the GO Zone tax incentives has been extended again to December 31, 2011 and is also widely expected to be extended to December 31, 2012.

Educational GO Zone Webinar

The key is to work with a real estate developer that is already building qualifying real property within the designated GO Zone areas. 

Exeter 1031 Exchange Services, LLC has scheduled a monthly webinar discussing the benefits of investing in real estate within the GO Zone.  This month's guest presenter is The Hanover Companies who has been actively developing GO Zone investment real estate for many years. 

President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2011 (the "Act") into law. This new act has some very favorable income tax planning provisions that benefit owners of real estate assets, and especially for those taxpayers who have always taken advantage of 1031 Exchanges.

The Act extends many areas of former President George W. Bush's tax cuts, including lower capital gain tax rates, tax free exemptions for estate and gift taxes, as well as preserving the step-up in cost basis received by heirs at the date of death.

Capital Gain Tax Rates Extended

The current low capital gain tax rates were extended for two (2) more calendar tax years. This means that most of us will be paying capital gain taxes at the maximum capital gain tax rate of just fifteen percent (15%) through December 31, 2012, unless of course you are deferring your capital gain taxes by structuring a 1031 Tax Deferred Exchange (see Section 1031 of the Internal Revenue Code). The ability to defer capital gain taxes into the future through a tax-deferred exchange such as the 1031 Exchange is often the best strategy because it keeps your money working for you.

Depreciation Recapture and State Taxes

Don't forget to include depreciation recapture taxes and any state income or capital gain taxes in the tax planning computation or estimate. The combined Federal and state taxes are still high on a combined basis for many states, so tax planning is still extremely important.

Estate and Gift Tax Exclusion

The estate and gift tax exclusion will be set at $5 million per taxpayer with any amount in excess of $5 million taxed at 35%. This is certainly more favorable for taxpayers than what many advisors and experts had expected to see out of this lame duck session of Congress.

Step-Up In Cost Basis

Taxpayers often ask what is the best way to plan for the transfer of their wealth at death. The most appropriate and suitable answer is generally to continue to defer their taxes throughout their life time by using tax deferred and tax exclusion strategies such as the 1031 Exchange. This allows the taxpayer's money to keep working, building and growing for him or her.

However, by far, the biggest benefit here is the ability to leave assets to heirs at a step-up in cost basis. This means that essentially the capital gain taxes go away when property is inherited by others. The person that inherits the property gets their new cost basis stepped up to equal the value of the fair market value of the property at the date of death.

Taxpayers can continue to defer capital gain taxes over the years, including depreciation recapture taxes, by structuring 1031 Tax Deferred Exchanges, and then leave the real estate or personal property to their heirs without incurring any capital gain taxes or depreciation recapture taxes. The heirs are only responsible for any capital gain tax or depreciation recapture tax that occurs or is generated after the date of death while they own the asset.

Beyond 2012

Planning for tax years beginning on or after January 1, 2013 is more problematic since these extensions end as of December 31, 2012, but at least we have some certainty for a couple of years.

North Carolina Representative Brad Miller (D-NC) who was the House Member that introduced the pending legislation is most concerned about the building industry’s job drain through out the United States.

As our contractors and builders through out the country struggle to get banks and other lenders to loan money for land development and construction, a North Carolina House of Representative Member has asked the U.S. Government to step up to the plate and start guaranteeing loans for viable construction and building projects.

"We’ve gone from indiscriminate lending to indiscriminate refusal to lend, and it’s killing jobs," says Brad Miller.

Congressman Miller in concert with Congressmen Joe Baca (D-CA) and Steny Hoyer (D-MD) introduced the House of Representatives Bill 5409 (H.R. 5409), officially known as the Residential Construction Loan Guarantee Program.

"We can’t tell 16% of the [Gross Domestic Product] to just hang around and wait for a while," says Miller, referring to the housing industry and its economic output.

H.R. Bill 5409 would require that the U.S. Government set aside $15 billion over a three (3) year period to be used for loan guarantees for land and building projects.  H.R. Bill 5409 is an amendment or tack on to another House of Representatives Bill that is currently moving through the House that, if passed, would extend $30 billion to small commercial banks for small business loans (SBA Loans).

The House Bill aims to reduce commercial bankers' or other lenders' risks by providing them with U.S. Government loan guarantees for eligible projects deemed to be "viable" by commercial banks and other lenders and the U.S. Department of the Treasury.  The builder or developer (borrower) must have a minimum financial net worth equal or greater than the guaranteed loan amount, and the loan itself can be used only for the acquisition, development, and construction of approved residential real estate projects.

The current House Bill provides the following:

• Loan to value ratio cannot exceed 75%
• Actual loan amount can not exceed the total building and development costs or 80% of the FMV of the real estate project
• 80% of the loan amount would be covered by the Federal loan guarantee

One-third of the guarantees would be made in areas where the lack of financing is most pronounced, as determined by the Department of the Treasury Secretary.  The loan guarantee program would expire three years after it is enacted.

Today's rapidly evolving real estate market provides lots of investment opportunities available for the real estate investor. The opportunities may be fire sales, short sales, foreclosures (Trustee sales) or deeds-in-lieu of foreclosure.

In any event, the real estate investor must move quickly to close on the really good (i.e. well priced) real estate deals. Cash is certainly king in today’s market place. Real estate investors that can pay all cash and close quickly will win out, and those who can’t pay cash or move quickly will lose out.

Real estate investors often want to sell some of their existing property to pay for their new acquisitions. They also want to defer their capital gain taxes via a 1031 Tax Deferred Exchange transaction. However, the well priced, and therefore really good real estate deals, will not wait for the investor to get his or her current properties listed, sold and closed through a 1031 Exchange transaction.

Investors must therefore find a way to structure their acquisition so that they can acquire the new investment property immediately, and then worry about selling their existing rental properties after they close on their purchase. Acquiring the new investment property first can be accomplished through a Reverse 1031 Exchange strategy.  The real estate investor doesn’t have to wait to sell his or her existing rental property. They can close on the new acquisition first, and then market their existing properties following the acquisition.

Although the Reverse 1031 Exchange strategy is more complicated and costly, it provides a solution for a rapidly evolving real estate market so that the more astute investors can take advantage of opportunities as they come along, according to William L. Exeter, co-founder of The Center for Wealth & Legacy™ and founder of The 1031 Exchange Institute™. 

You can register for a free educational webinar on Reverse 1031 Exchange transactions.  Click here for more complete registion information.