Multi-Family Residential Developers & Homebuilders

IRC 45L – Allows for a $2,000 tax credit per qualified apartment, condominium unit, or single family home. For example, a 50 unit apartment can be eligible for $100,000 of Federal Tax Credits.

Commercial Developers

IRC 179D – Allows taxpayers to claim a deduction of $1.80 per square foot for qualified buildings constructed. For example, if the taxpayer builds an eligible 100,000 SF building the taxpayer is entitled to $180,000 of Federal tax deductions.

Any Taxpayer Making Substantial Improvements To An Existing Building

IRC 48 – Allows for a tax credit of up to 30% of the cost for qualified building expenditures and special treatment on the remaining depreciable basis. Consult with a tax advisor as tax credits that cannot be used by the taxpayer may be able to be monetized to help taxpayer obtain cash.

A taxpayer falls within the safe harbor requirements of Rev. Proc. 2010-14 if he or she transferred relinquished property to a QI in a tax deferred exchange, and: (A) Replacement property was properly identified within the 45-day Identification Period (unless the QI default occured during the Identification Period); (B) the taxpayer is unable to complete the exchange due to the QI’s default and the QI either files for bankruptcy protection or is subject to receivership proceedings under Federal or state law and (C) the taxpayer has not had actual or constructive receipt of the proceeds from the sale of the relinquished property or any other property up to the date the QI entered bankruptcy or receivership.

For exchange transactions meeting the safe harbor requirements, the Procedure provides that the taxpayer will not be treated as having actual or constructive receipt of exchange proceeds on the expiration of the 180 day exchange period. Instead, the Procedure permits the taxpayer to report gain as exchange proceeds are received from the bankruptcy trustee or receiver under rules similar to those employed under Internal Revenue Code Section 453 (Installment Method). Under rules applicable prior to the issuance of the Procedure, it was unclear whether the taxpayer in a failed exchange would be deemed to be in constructive receipt of exchange proceeds on the expiration of the exchange period. Secondly, the safe harbor provides that any debt relief otherwise treated as a payment in the year the relinquished property was transferred to the qualified intermediary is limited to the amount by which the debt exceeds that taxpayer’s adjusted basis in the relinquished property. This rule is more generous than the rule applicable under Section 453 which would treat the entire amount of the debt relief as a payment received by the taxpayer in the year the relinquished property was transferred, The remainder of the Procedure describes the mechanics or reporting gain or loss as exchange funds are recovered from the qualified intermediary.

Effective Date: The Procedure is effective for transactions that fail due to QI default on or after January 1, 2009 (although exchanges that have failed due to QI default that closed before January 1, 2009 can file an amended return in accordance with this Procedure.)

In conclusion, the security of exchange proceeds while in the possession of the QI has always been of paramount importance at Asset Preservation, Inc. (API). We provide the highest levels of experience, expertise and security of funds in the industry – what we call The API Advantage™. Click on this link and learn why Corporate America relies on API.

NO ESTATE TAXES IN 2010 BUT HIGHER CAPITAL GAIN TAX CONSEQUENCES

Along with the elimination of estate taxes in 2010, the familiar “step-up” in basis on property owned by a decedent at death is now limited to $1.3 million, which may be allocated among the decedent’s assets. Given the limited basis step-up, the heirs of a decedent dying in 2010 might owe capital gain taxes based upon the decedent’s adjusted basis at the time of the decedent’s death. If the heir cannot establish evidence of that basis, the IRS dictates that the heir’s basis is zero. In this regard, things might get more challenging as heirs will have to prove the basis of assets which can be very difficult for many heirs, as stock splits, mergers and dividends could render tracking a nightmare. Essentially, this may leave many heirs of estates over $1.3 million in 2010 in the unfortunate position of paying more in capital gain taxes. According to the Reuters article, “Estate Tax Seen Bringing Chaos,” up to 70,000 heirs could face higher taxes, despite the elimination of the estate tax in 2010.

The Economic Growth and Tax Relief Reconciliation Act of 2001 (“2001 Act”) temporarily repealed the estate tax and generation-skipping transfer tax for estates of individuals dying in 2010. However, the current transfer tax rules are in a state of flux as a result of changes made by the 2001 Act that have been gradually implemented. The 2001 Act contained a so-called “sunset rule”, under which the pre-2001 rules return after 2010, unless Congress provides otherwise. The 2001 Act also changed the unified system so that the gift tax exemption amount remained at $1 million for all years after 2001. Unlike the estate tax, the gift tax is not repealed during 2010. However, under the “sunset rule,” both the estate and the gift tax exemptions will be $1 million. In 2010, there is no estate tax and the top gift tax rate is 35%. The top estate and gift tax rates revert to 55% in 2011.

POSSIBLE WINNERS IN 2010

The heirs of individuals dying in 2010 with very large estates will save a substantial amount of estate tax. While they may also be exposed to some capital gain taxes under the modified carryover basis regime, the estate tax savings could more than offset the increased income tax costs.

POSSIBLE LOSERS IN 2010

Heirs of many smaller estates could come out worse as the step-up in basis is removed. While these individuals won’t face estate tax costs, they could face significantly higher income and capital gain tax costs.

Whether a winner or a loser, the potential to defer capital gain taxes with a 1031 exchange remains a viable option for heirs inheriting appreciated property under the current tax regime.

Reporting Large Transfers at Death: For estates of decedents dying after December 31, 2009, and before January 1, 2011, the federal estate tax is repealed. Accordingly, no United States Estate (and Generation-Skipping Transfer) Tax Return (“Form 706”) will be required for estates of decedents dying during that period. Does this mean, then, that no information return is required to be filed with the IRS for the value of decedent’s estate? The answer is NO!

Read the full report.

By: Doug H. Moy
Consulting Specialist in Estate and Gift Taxation and Planning Member, National Association of Tax Professionals (NATP)

2010 Transfer Tax Update
In view of the unprecedented confusion brought about in the waning hours of the 1st Session of the 101st Congress, this issue of ESTATE WISE PLANNING™ addresses the state-of-affairs, so-to-speak, of the transfer tax system for the year 2010, assuming Senator Max Baucus, D-Montana and Chairman of the Senate Finance Committee, is unsuccessful in convincing his rancorous colleagues to retroactively reinstate the federal estate and generation-skipping transfer taxes to estates of decedents dying after December 31, 2009.

Read the entire tax report

Nelsonian Theory would agree with that concept.                                                                                                                                    However, it is wise to be well informed on critical technical subjects so that you can detect potential flaws and lapses in understanding of those who act on your behalf.

That being said… here is the Internal Revenue Code – Section 1031

It identifies and specifies the federal tax rules that govern the tax deferred exchange.