Investing in Real Estate

Federal and state fair housing laws prohibit discrimination in advertising the rental property and renting property on the basis of race, religion, national origin, color, sex, handicap, or familial status. Some state laws go further and protect marital status or sexual orientation. One mistake many landlords make is denying a rental unit to a family on the basis of the number of bedrooms available. Be careful to review local occupancy laws and how they apply to the number of people who can occupy each bedroom. Also, remember that you can decline to rent to persons in a protected class, but the denial must be based on criteria poor credit, not having a job for more than three months used with all prospective tenants, and for reasons other than their membership in a protected class.

You can refuse to rent to an individual because of a poor credit rating or rent payment history. However, if you do, federal law requires you to tell individuals a poor credit rating was the reason their application was rejected. You should also inform them that within 60 days of the rejection, they have a right to obtain a copy of the report from the agency that reported the poor credit. You must also give applicants the name, address, and phone number of that agency. In most states, you may charge an applicant for the cost of obtaining a credit report.

Federal law requires that before tenants sign a lease on a property built before 1978, the landlord or agent must provide them with a copy of an Environmental Protection Agency pamphlet on possible lead hazards and have them acknowledge receipt of the pamphlet (available at epa.gov/lead). The landlord or agent must also provide information about any known lead hazards on the property, including copies of any lead hazard test reports. The lease also must include a specific lead hazard warning statement. If your building has four or more units, you must also notify tenants in those units about the potential health threats when renovation work is done at the property.

Under the federal Fair Housing Act, you must permit tenants with disabilities to make reasonable alterations to their rented apartment at the tenants’ expense so that they can use the premises. You may require that a tenant return the property to its former condition upon vacating. In addition, you must make reasonable accommodations in the rules and regulations governing your housing so that a disabled tenant can fully enjoy the premises. Examples of accommodation include allowing seeing-eye dogs in a no pet building or waiving rules banning large vans in your parking lot for those in wheelchairs.

Many municipalities have laws governing how you must handle security deposits made as part of apartment rental and what procedures you must follow to evict a tenant. Like earnest money deposits, security deposits must usually be kept in a separate account and often must accrue interest. You may also be required to provide a written account of any deductions taken from the security deposit to repair the apartment at the time a tenant moves out. Eviction regulations often set down what types of notice you must give tenants before filing for eviction and how much time a tenant must be given to resolve any problems before eviction.

A Section 1031 Exchange Is One of The Few Techniques Available to Postpone or Potentially Eliminate Taxes Due on The Sale of Qualifying Properties. by Deferring the Tax, You Have More Money Available to Invest in Another Property. in Effect, You Receive an Interest-Free Loan from The Federal Government, in The Amount You Would Have Paid in Taxes. Any Gain from Depreciation Recapture Is Postponed. You Can Acquire and Dispose of Properties to Reallocate Your Investment Portfolio without Paying Tax on Any Gain.

Once the money is deposited into an exchange account, funds can only be withdrawn in accordance with the Regulations. The taxpayer cannot receive any money until the exchange is complete. If you want to receive a portion of the proceeds in cash, this must be done before the funds are deposited with the Qualified Intermediary.

The exchange ends the moment the taxpayer has actual or constructive receipt (i.e. direct or indirect use or control) of the proceeds from the sale of the relinquished property. The use of a QI is a safe harbor established by the Treasury Regulations. If the taxpayer meets the requirements of this safe harbor, the IRS will not consider the taxpayer to be in receipt of the funds. The sale proceeds go directly to the QI, who holds them until they are needed to acquire the replacement property. The QI then delivers the funds directly to the closing agent.

• A Qualified Intermediary is an independent party who facilitates tax-deferred exchanges pursuant to Section 1031 of the Internal Revenue Code. The QI cannot be the taxpayer or a disqualified person.
• Acting under a written agreement with the taxpayer, the QI acquires the relinquished property and transfers it to the buyer.
• The QI holds the sales proceeds, to prevent the taxpayer from having actual or constructive receipt of the funds.
• Finally, the QI acquires the replacement property and transfers it to the taxpayer to complete the exchange within the appropriate time limits.

The IRS regulations are very clear. The taxpayer may not receive the proceeds or take constructive receipt of the funds in any way, without disqualifying the exchange.

No, as long as the taxpayer has not transferred title or the benefits and burdens of the relinquished property, she can still set up a tax-deferred Exchange. Once the closing occurs, it is too late to take advantage of a Section 1031 tax-deferred exchange (even if the taxpayer has not cashed the proceeds check).

No, not in most situations. The IRS regulations allow the properties to be deeded directly between the parties, just as in a normal sale transaction. The taxpayer’s interests in the property purchase and sale contracts are assigned to the QI. The QI then instructs the property owner to deed the property directly to the appropriate party (for the relinquished property, its buyer; for the replacement property, the taxpayer).

A taxpayer has 45 days after the date that the relinquished property is transferred to properly identify potential replacement properties. The exchange must be completed by the date that is 180 days after the transfer of the relinquished property, or the due date of the taxpayer’s federal tax return for the year in which the relinquished property was transferred, whichever is earlier. Thus, for a calendar year taxpayer, the exchange period may be cut short for any exchange that begins after October 17th. However, the taxpayer can get the full 180 days, by obtaining an extension of the due date for filing the tax return.

Unfortunately, there are no extensions available. If the taxpayer does not meet the time limits, the exchange will fail and the taxpayer will have to pay any taxes arising from the sale of the relinquished property unless the IRS has expressly granted extensions in a specified disaster area(s).

The potential replacement property must be identified in a writing, signed by the taxpayer, and delivered to a party to the exchange who is not considered a “disqualified person”. A “disqualified” person is anyone who has a relationship with the taxpayer that is so close that the person is presumed to be under the control of the taxpayer. Examples include blood relatives and any person who is or has been the taxpayer’s attorney, accountant, investment banker, or real estate agent within the two years prior to the closing of the relinquished property. The identification cannot be made orally.

No. Any property that is held for productive use in a trade or business, or for investment, may qualify for tax-deferred treatment under Section 1031. In fact, many exchanges are “multi-asset” exchanges, involving both real property and personal property.

A reverse exchange sometimes called a “parking arrangement,” occurs when a taxpayer acquires a Replacement Property before disposing of their Relinquished Property. A “pure” reverse exchange, where the taxpayer owns both the Relinquished and Replacement properties at the same time, is not allowed. The actual acquisition of the “parked” property is done by an Exchange Accommodation Titleholder (EAT) or parking entity.

Realized gain is the increase in the taxpayer’s economic position as a result of the exchange. In a sale, tax is paid on the realized gain. Recognized gain is the taxable gain. Recognized gain is the lesser of realized gain or the netboot received.

The most conservative way is to stay consistent and complete the exchange the same way it was started and to add the spouse after the completion of the exchange. An exception can be made if there is a lender requirement that the spouse has to be added in order to qualify for a loan. If an exchange is planned well ahead of time, another solution would be to add the spouse to the title of the currently held property. Timing should be discussed with the CPA.