1031 Exchange Depreciation Worksheet - PowerPoint

							      In this chapter
       Tax considerations
       True cost of housing
       Reverse mortgages
       Installment sales and 1031 exchanges
       Pensions, 401k accounts, and IRAs
       Medicare, Medicaid, and Social Security
       Schemes and scams

6-1
      Declaring a Domicile
       Concern for seniors who maintain a
        home in more than one state
       Impact on income and real estate tax
       Be prepared with information on
        any senior tax breaks




6-2
      Capital Gains Tax
       Difference between the adjusted basis
        and the current sales price
       Basis increased by capital improvements,
        reduced by depreciationhigh basis is best
       Long-term gains on assets owned for 12
        months, short-term gains taxes at ordinary
        income rates
       Losses deductible up to $3,000 annually,
        carry over or carry back

6-3
      Sale of a Personal Residence
       $250,000/ $500,000 for married couples
        excluded
       Must be primary residence for total of 2 or
        more of the 5 years prior to the sale
       If illness or disability, job relocation,
        or specified unforeseen circumstances,
        for sale prorated gain is excluded
       Requires physician certification

6-4
      Basis Step-Up
       Heirs receive a stepped-up basis
        of fair market value at the date of the
        decedent’s death
       Capital gains tax “forgiven”
       Does not apply to property acquired by
        decedent by gift within one year of death




6-5
      Understanding Estate Tax
       Important issue for high net-worth
        individuals, about 2-3% of taxpayers
       Transfers between spouses are exempt
        and personal residence is excluded from
        gross estate
       If value of the estate exceeds exemption,
        the amount over the exemption is taxable
       Eliminated in 2010, returns in 2011

6-6
      Gift Tax
       Moves assets out of the gross estate
       Pleasure of making a gift
       Assures gift goes to a particular person
       Each spouse can gift up to $12,000 to an
       individual  total of $24,000 annually
       No repeal in 2010



6-7
      Unified Credit
       Applies to both gift and estate tax es
       Any portion of the unified credit not used to
        eliminate gift tax can be used to reduce or
        eliminate the estate tax




6-8
      Generation-Skipping Transfer Tax
       Gifts made during life or as bequests if the
        recipient or heir is two or more
        generations younger than the donor
       Lifetime exemption of $2 million through
        2010, back to $1 million in 2011
       Not included in the unified credit




6-9
         Social Security and Pensions
          Social Security is taxable if modified
           adjusted income exceeds a base amount
          Distributions from pension accounts
           generally taxable because contributions to
           are made with pre-tax dollars




6 - 10
         1031 Exchange
          Defer capital gains tax on the exchange of
           property used in trade or business or held
           for investment
          Continuation of the ownership
          Issue for owners of investment/income
           real estate
          Learn to recognize exchange situations
           and assist clients in finding experts

6 - 11
         1031-Exchange Goals
          Increase equity
          Consolidate assets or diversify
          Relocate
          Conserve and compound an estate
          Other




6 - 12
         1031 Basic Rules
          Property must be used in trade or
           business or held for investment
          Exchanged for like-kind
          Same title holders for relinquished and
           replacement properties
          45 days to identify, 180 days to close
          3 replacement properties or 200%
           of the value or receive 95% of the
           aggregate value

6 - 13
         Documenting Intent
          The purchase and sale agreement
           (or an addendum) should state
           exchanger’s intent
          “It is the intent of the seller to perform a
           Section 1031 exchange and the buyer is
           asked to cooperate by signing an
           Assignment Agreement at no cost or
           liability to the buyer.”



6 - 14
         Personal Residence Received in an Exchange
          Must be owned for 5 years and lived in for
           2 years from the date of the exchange
           before the owner can sell the residence
           and claim the $250,000 capital gains
           exclusion on the sale of a personal
           residence
          Wait 2 years before moving into the
           residence



6 - 15
         TICs
          Popular with high net-worth individuals
           who want to maintain an investment of
           real estate, realize income from it, but be
           free from day-to-day management
          Partial interest usually in a very high
           investment-grade commercial property
          Minimum buy-in usually $250,000 +



6 - 16
         Qualified Intermediaries (QIs)
          Involvement of an expert exchange
           accommodator is essential
          QI disposes of the exchange property,
           holds the sale proceeds, acquires and
           transfers a replacement property, and
           disburses funds
          Avoids actual or constructive receipt of
           any of the exchange proceeds


6 - 17
         Why Exchanges Fail
          Missed time deadlines
          Lack of replacement properties
          Negotiations break down
          Lack of patience




6 - 18
                       Typical 3-Way Exchange                     $1 million cash




                                                                     Bob
                                                                    (buyer)




                                                     $1,000,000
           Edward
         (exchanger)    $100,000     Qualified
                                   Intermediary
                                     $1 million

         $1 million                               $900,000
         property
                                                                     Susan
                                                                     (seller)




                                                                     $900,000
                                                                     property




6 - 19
         True Cost of Housing
          Looks at how a home’s economic worth
           can be best used
          Helps evaluating the optionsto remain
           in a home, apply for a reverse mortgage,
           sell and rent
          Provided worksheet is NOT investment
           advice



6 - 20
         Reverse Mortgages
          For individuals aged 62 or older
          Enables conversion of home equity
           into cash
          Can help when high prices and taxes are
           pushing someone out of his or her home
          Compare to selling the home
          www.reversemortgage.org


6 - 21
         Reverse-Mortgage Benefits
          Tap the built-up equity
          No income or credit qualifications
          No risk of foreclosure
          Tax-free income
          No impact on Social Security, Medicare,
           or pension payouts



6 - 22
         Reverse-Mortgage Uses
          Annuity for lifetime income
          In-home care
          Supplement monthly income
          Renovate
          Pay off credit cards, back taxes, loans
          Buy a home
          Other needs and dreams

6 - 23
         Reverse-Mortgage Products
          Home Equity Conversion Mortgage
           • Federally insured
           • FHA limits
          Fannie Mae Home Keeper®
          Financial Freedom Senior Funding
           Corporation



6 - 24
         Reverse-Mortgage Myths
          The bank winds up owning the home
          The bank gets it all
          Could owe more than the house is worth
          Could lose to foreclosure
          Have to pay back everything owed




6 - 25
         Reverse-Mortgage FAQs
          What are the borrower’s obligations?
          Who is eligible?
          What types of property are eligible?
          How are funds paid out?
          What is a reverse line of credit?
          When must a reverse mortgage be repaid?



6 - 26
         Reverse-Mortgage FAQs
          How much cash can a borrower obtain?
          What are the costs?
          What is a TALC disclosure?
          What are the steps in the application
           process?
          What counseling is required?



6 - 27
         Reverse-Mortgage FAQs
          Where does closing take place?
          When is a reverse mortgage not a good
           idea?
          Can another home be purchased with a
           reverse mortgage?




6 - 28
         Reverse-Mortgage Terminology
          203-b limit
          Acceleration clause
          Deferred payment loan
          Leftover equity
          Margin
          Maturity
          Non-recourse mortgage
          Proprietary reverse mortgage
          Reverse annuity mortgage

6 - 29
         Installment Sale Benefits
          A larger pool of potential buyers
          Tax benefits
          Good interest earnings
          Relatively safe investment




6 - 30
         IRAs
          Individual IRA
          Simplified Employee Pension (SEP)
          Roth IRA




6 - 31
         Can an IRA Own Real Estate?
          Real estate investment trust (REIT)
          Land, commercial property, rental
           residential property
          Requires an IRA custodian or trustee
           specializing in real estate or self-directed
           IRAs
          No personal use, no personal residence
          The IRA can sell the property or transfer
           the title to the owner at age 59½

6 - 32
         Pension Plans
          Annuities
          Savings Incentive Match Plan (SIMPLE)
          Defined benefit
          Defined contribution




6 - 33
         Social Security, Medicare, SSI, Medicaid
          Social Security and Medicare not need based;
           Medicaid and SSI are need based
          Medicaid – federal program administered by
           states
          Medicaid eligibility maximum $2,000
           in liquid assets
          Reverse mortgage income okay if spent in the
           month received
          3-year look-back for eligibility



6 - 34
         Spending Assets
          When to withdraw cash?
          How much?
          From which “savings”pension, 401K,
           IRA, savings, home equity, other?




6 - 35
         Scams and Schemes
          Deed scams
          Phone calls “verifying” information
          High pressure sales
          Phony home repairs
          Identity theft
          Fraudulent mortgage notices



6 - 36