Did Corona Virus knock you down?

We all know the situation. My question is how this pandemic affect you?If you are about to get into foreclosure this are your options :

  • Bring your loan current.

$$/ month x N months that you missed the payments = one time $$$$$ lump sum + attorney’s fees and accrued interests

The lender must agree!

  • Loan Modification

Your lender must agree to change terms

You must qualify with the lender. Typically harder to obtain than refinancing. Lender is not obligated to approve it. Proof of income is still required

  • Forbearance –must afford

Payments are reduced or suspended for a period

May be an option if your income is reduced temporarily

At the end of that time, you   resume making your regular payments as well as a lump sum payment (sum of all missed payment at once)

  • Refinancing

You must qualify like for a new loan

Good Credit, Good Income, + min 20% equity or a down payment

Payoff amounts and penalties

Must have money to cover the cost of refi (attorneys, appraisals, title insurance, bank fees, etc)

Positive Debt-to-income ratio.

Can you afford closing costs and fees?

*Are you prepared to pay the application fee?

*Have you determined title insurance, attorney and closing costs?

*Do you have these funds to pay upfront?

  • Bankruptcy

Last resort (must be avoided) because the results are long-lasting, will affect you credit records for 10 years in your report. If you decide to file for bankruptcy, you have two basic options: Chapter 7 and Chapter 13.

->A Chapter 7 bankruptcy will sell off many of your assets to pay your creditors. Some assets—typically including part of the equity in your home and automobile, personal items, clothing, tools needed for your job, pensions. Social Security, and any other public benefits—are exempt, meaning you get to keep them

-> In a Chapter 13 bankruptcy, you keep the assets but must repay your debts over a specified period.

Chapter 13 may allow you to keep property.

  • Sell it yourself or with a Realtor (free consultation with a realtor).

Need to how much the current market price will cover your loan, or to the best of it,

Must consider the current property condition,

Commission to realtors,

Closing cost,

Time (min 3 months until the auction day,

Must have Equity (Free Broker Evaluation )

  • Deed in Lieu of Foreclosure

       You voluntarily transfer your property title to the servicers (with the servicer’s agreement) in exchange for cancellation of the remainder of your debt.

       Less damaging to your credit than a foreclosure

  • Sell it to an investor – Cash Offer

       Different options that can be discuss .

For detailed information about each of the steps, as well qualification models and table are all available. We offer as well a free walk thought consultation . Charity Money available with the right homeowners qualifications .

     Disclaimer: Please for any decision you choose, have a full understanding of all steps and paperwork to be signed as well as consult an attorney.

Investment Guidance

If you are an investor please don't make a mistake that will cost you
... the biggest mistake investors are doing is not doing a proper 
"Do Diligence"

Before putting any money into any deal , do all the research necessary. 
Check the following items. Zoning, Market (see if there is any demand for 
what you are planing ) , Prices, Competition, Highest and Best Use ( maybe 
with the same property you can do something better that will bring you a 
better ROI ) and much more.
We can help you to do better !!! By allowing us to do all this for you in 
a professional matter.
Our company has State Certified General Appraisers that can develop a 
Restricted Use Appraisal Reports at reasonable prices which are intended to 
be relied upon by you to help make the best decisions for your investments.

 The following is a partial list of property types we have appraised.      

Investor Valuations  is a full service real estate appraisal and consulting 
firm providing Appraisal Valuation Services and Feasibility Studies as well 
as Highest and Best Use Studies. Our staff of expert appraisers including 
MAI Appraisers, are all state certified and are qualified to complete any 
appraisal, feasibility or consulting assignments.

We are a full service  company utilizing the most popular software 
applications and state-of-the-art equipment. Our ongoing success is 
primarily due to high quality products, competitive pricing and client 
We can provide all types of commercial and residential appraisals in 
addition to eminent domain, condemnation and litigation appraisals 
involving expert witness testimony.
C         Insurance Replacement Cost Valuations

C         Multi-Family Apartment Buildings
C         Shopping Centers
C         Office Buildings
C         Warehouse and Industrial Buildings
C         Vacant Commercial and Residential Land
C         Nursing Homes and ACLF Care Facilities
C         Hotel and Motel Properties
C         Single Family Homes
C         Condominiums
C         2 to 4 Family Homes
C         Business Valuation

In addition we now provide various types of extensive feasibility studies 
which consider the current and future uses of existing properties. We can 
provide important decision making data to investors on alternative uses of 
their properties. Our staff research state-of-the-art and existing real 
estate trends in the subject and surrounding area and determine how to 
apply the results to the clients project to maximize the return on 
We can provide studies which indicate the future value of an alternate use 
so the client can factually and confidently determine the best development 
plan for their project.

Please contact our office to discuss your specific property and find out 
what we can do for you

Build a tax free investment


How can I benefit from a Roth IRA?
 It's a way to save for retirement and supplement your 401(k) plan savings.
You'll get tax-free earnings growth and tax-free withdrawals. In retirement
if you meet certain conditions (contributions aren't tax-deductible). You 
can choose from a variety of mutual funds and ETFs, as well as individual 
stocks and bonds.
Note: On average, other mutual funds are five times more expensive than 
How do I know if I'm eligible to contribute?
Regardless of your age, you can contribute if your earned income is at least
 equal to your Roth IRA contribution.You can contribute as long as your 
earned income doesn't exceed the Roth limits. Generally, the Roth limits are
 less than $188,000 for 2013 and $191,000 for 2014 if you're married filing 
jointly; less than $127,000 for 2013 and $129,000 for 2014 if you're single
and the head of household. If you make less than the Roth income limits, 
you may be able to make a full contribution or only a partial contribution. 
For details, including instructions on how to calculate your allowable 
contribution, visit the IRS website for contributions you can make for 2013,
2014 or contributions you can make for 2015.
 Tip: If you'll need to withdraw your IRA assets within the next 5 years, 
you may be better off with a traditional IRA.
Are my contributions tax-deductible?
What are the rules for withdrawals?
How much can I contribute?
If you're under age 50: $5,500 for the 2013 and 2014 tax years.If you're 
age 50 or older: $6,500 for the 2013 and 2014 tax years.
Withdrawals are tax-free if you're age 59½ or older and you've held the 
account for at least 5 years.You're never required to make a withdrawal 
based on your age or other criteria.
Tip: Since you won't be required to make withdrawals, you can make your 
Roth IRA assets part of your estate plan and pass them on to your heirs.
Is there a penalty if I make an early withdrawal?
 Yes. If you make a withdrawal of earnings before age 59½, there's a 10% 
federal penalty tax unless an exception applies.Withdrawals from your 
contributions are always penalty-free.
The term self-directed simply means that the owner of the IRA has control 
over what investments the IRA makes. By doing so, IRA owners are taking 
control of their own retirement futures…by investing in what they know and 
 Self-directed IRAs can acquire real estate, hold mortgages and notes, 
private placements (such as LLCs and trusts), precious metals, invest in 
foreign currency and participate in futures trading and other investment 
options. Self-directed IRAs can certainly hold the traditional stocks, 
bonds and mutual funds, but the myriad of alternative investments are what 
attract owners of these accounts.

We recommend that before taking any decision please please do the due 
diligence and consult you Lawyer or Accountant

What is a 1031 Exchange?

1031 Exchange is a vehicle that  allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes. 

Thanks to IRS Section 1031, a properly structured 1031 exchange allows an investor to sell a property, reinvest the proceeds in a new property and to defer all capital gain taxes. In others words, you can avoid paying capital gain taxes by using the 1031 exchange for the rest of you life.

IRS Section 1031 (a)(1) states:

“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”

For example:

An investor has a $200,000 capital gain and incurs a tax liability of 
approximately $70,000 in combined taxes (depreciation recapture, federal 
and state capital gain taxes) when the property is sold. Only $130,000 
remains to reinvest in another property. 

Assuming a 25% down payment and a 75% loan-to-value ratio, the seller would
only be able to purchase a $520,000 new property. 

If the same investor chose to exchange, however, he or she would be able to
reinvest the entire $200,000 of equity in the purchase of $800,000 in real 
estate, assuming the same down payment and loan-to-value ratios. 

Exchanges protect investors from capital gain taxes as well as facilitating
significant portfolio growth and increased return on investment.


A) The name, address and telephone number of the Exchanger
B) The closer/escrow holder's name, address, telephone number and file 
Include language establishing the intent to effect a §1031 tax deferred 
exchange in the Purchase and Sale Agreement. The following are examples:


“Buyer should be aware that Seller intends to perform an IRS 1031 tax deferred exchange. Seller should request Buyer’s cooperation in such an exchange and agrees to hold Buyer harmless from any and all claims, liabilities, costs, or delays in time resulting from such an exchange. Buyer agrees to an assignment of this contract to an Agent by the Seller.”



“Seller should be aware that buyer intends to perform an IRS 1031 tax deferred exchange. Buyer should request Seller’s cooperation in such an exchange, and should agree to hold Seller harmless from any and all claims, liabilities, costs, or delays in time resulting from such an exchange. Seller should agrees to an assignment of this contract to an agency by the Buyer.”

1031 Exchange is a tool used to avoid paying capital gain taxes

Please consult your tax adviser or attorney for specific details and qualification before attempting an 1031 Exchange

Our company will help you and guide you thrught the entire Process of getting ready to invest with the 1031 Exchange if you would like more information and to work with us please fill in the Short form and we will contact you within 24 Hours.


If you are considering completing a 1031 Like-Kind Exchange, below is an overview of the information that would be needed. Once the information below is received, the next steps would be to calculate the taxable gain (if any) and the deferred gain. It is important you work with a CPA and a Qualified Intermediary when completing a 1031 Like-Kind Exchange.
Should you have any questions regarding any of the items below, please do not hesitate to contact us We got got the right team in place. When you please have the following points ready….
 Description of like-kind property given up (can be more than one)
 Description of like-kind property received (can be more than one)
 Date like-kind property given up with originally acquired
 Date you actually transferred your property to other party
 Date like-kind property you received was identified by written notice
to another party
 Date you actually received the like-kind property from other party
 Did the 1031 exchange involve a “related party”?

Real Investors Code of Ethics , a great way to show the word that we are here to help the people and the industry


Section 1

All Real Estate Investors  shall agree to observe and be bound by the following Code of Ethics:

a. Investors shall constantly seek to provide better values, so that people may know and enjoy the benefits of homeownership or rental living.

b. Investors shall at all times contribute their knowledge in providing housing and management to the best interest of those they serve.

c. Investors shall not obtain any business by means of fraudulent statements or by use of implications unwarranted by fact or reasonable probability.

d. Investors shall comply both in spirit and letter with rules and regulations prescribed by law and government agencies for the health, safety, and progress of the community.

e. Investors shall not perform or cause to be performed any act which would tend to reflect on or bring into disrepute any part of the housing provider industry.

f. Investors shall not perform or cause to be performed any act which would tend to reflect on or bring their image /company into disrepute.

g. Investors shall conduct their business practices between other investors with integrity in an honest manner and shall not conduct any business transaction which would tend to bring disrepute to the Real Estate Investment business, the business of another Investor, or to any part of the housing provider industry.

h. Investors acknowledge that Real Estate Industry policy is to support and foster Fair Housing. Members understand that it is illegal to advertise or in any way to discriminate in the sale or rental of a dwelling to a person because of race, color, religion, sex, handicap, familial status or national origin. All members pledge to uphold all Fair Housing Laws.

i. Investors shall not obtain any business by means of fraudulent statements or by use of implications unwarranted by fact or reasonable probability.

j. Investors shall comply both in spirit and letter with rules and regulations prescribed by law and government agencies for the health, safety, and progress of the community.

k. Investors shall not perform or cause to be performed any act which would tend to reflect on or bring into disrepute any part of the housing provider industry.

l. Investors shall be always keeping their integrity and ethics no matter of the circumstances that will involve him and his company.

This is the way that all investors should be doing/run business.

Remember always keep your word and promises.

Never complain, never explain.

Make money with integrity

Real Estate Investor

Invest with us in real estate :



Don’t pay taxes , make money….

Fiscal Tax Year end is approaching let us help you to reduce the amount of taxes you pay ,and increase your wealth ,..

“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”

learn how here


Buying Off-Market properties ! A way to be a winner

  1. off-market properties?– By definition off-market properties are not advertised publicly, therefore finding them is not always easy, leaving you with few reference points. Therefore even if you are interested in these properties, it always makes sense to consider the whole market, to increase your choices and gather information on the trading prices of similar luxury properties located in the area that interests you. Still in some markets for privacy or security reasons some of the most exclusive properties are sold by private transactions, in other words without being advertised on the internet or other media. Exclusive
  •                        hard to get them
  •                      maybe to lower price 
  1. Be proactive –Whilesome owners may be actively looking to sell and simply prefer not to publicize their property online, choosing instead to go off-market, other owners may not be ready to sell just yet but would do so if they received the right offer. Certainly if you are not proactive in finding properties and approaching the vendors you risk of waiting forever. There are various things that you can do to increase the probability of finding the right off-market property as follows: 
  • Place adverts in suitable publicationsdescribing the type of property you require. Shortly Te Atrium will launch a platform for off-market transactions where you can publish your search criteria and find suitable sellers; register on our website to know more.
  • Walk the streets to identify potential properties and write an open letter to the owners. Alternatively if you are looking to buy an apartment in a serviced building, visit the building and speak to their concierge; it may be a great source of information.
  • Inform your family and friendswho live in the area where you are looking to buy; they might know someone who is looking to sell off-market.
  • Last but not leastconsider hiring a buying agent who is a local property expert, has a great network of potential sellers and with whom you can build a good rapport (see below).
  1. Check that the property is, in fact, off the market –Especially if you do not use a buying agent who can check things on your behalf you may want to double check that the property is truly off-market. Search online and ask local agents to see if the property has recently or ever been on the market. Perhaps it has been taken off-market, in which case you would do well to find out why and how many other people have heard about the property as a result.
  2. Don’t always expect to save money– Each off-market transaction is different so it is really difficult to generalize. However, everything else being equal (in other words considering only the effect of selling off-market versus selling publicly the same property), there are factors that can push the full amount paid by the buyer in both directions.

On one side the Seller of an off-market property may be able to reach a lower number of potential buyers and therefore as a buyer you may have to face less competition and possibly offer a lower bid. On the other side, when the seller is not actively looking to sell as well as when the real estate market is hot or very liquid, the buyer may have to offer above market value to make sure that the seller accepts the offer.

Going off-market the buyer may be saving money on selling agent fees (if they are applicable – in London for instance this does not apply as selling agents’ fees are paid by the seller). On the other side the buyer may have to factor in buying agent fees (if applicable); however buying agents are usually good negotiator and may be able to achieve a discount on the asking price so that their service more than pay for itself.

Nonetheless it is always good to remember that other (independent) factors may influence the purchase price of the property even more such as:

  • The market conditions;
  • The eagerness and market knowledge of the buyer;
  • The financial condition and needs of the seller.
  1. Don’t be afraid to negotiate –At the beginningof every negotiation you need to decide the maximum price that you are willing to offer for that specific property. So in case you are caught in an auction with rising prices you will know when to stop and you won’t regret overpaying to acquire the property. Never offer your maximum price right upfront; on the contrary try to keep your first offer as low as possible. If your first offer is not accepted it is not a bad sign; from that point continue the negotiation and increase your bid in lowering increments (if needed). Whatever you decide to offer, benchmark it against with what is happening in the local market for similar properties; if you are not sure seek help or let us know; our Property Scouting Team can put you in touch with the most qualified experts in the property market.
  2. Be patient and prepared –Buying off-market may take longer, especially if you have limited time or if do not receive enough support during your search. However once the right opportunity comes around you need to act quickly. By moving fast there is a lower risk of possible disruptions to occur, for example, another buyer making a higher offer or a vendor changing his or her mind; make sure that you have everything in place financially and legally to complete the transaction as soon as possible. OnTe Atrium website you can find up to date property guides and on our blogyou can always find up to date information on the luxury real estate market.

Do need some help with private property deals? how much should you offer? what are the steps ? what to avoid?

Well please free to contact us at  www.offmarket-properties.biz

“ 1031 Exchanger Beware…”

A group of 1031 investors recently, and tragically, learned they had to pay for a dishonest QI’s indiscretion.

The IRS requires that a 1031 investor use an independent third party called a Qualified Intermediary, or “QI,” to hold the investor’s money during a 1031 exchange. Most QIs put all of their clients’ sales proceeds or exchange funds into one single account – a “commingled” account. Very few intermediaries set up separate, “segregated” accounts for each client because it’s more expensive and a time-consuming process – and the QI must have a very good working relationship with its bank and strong internal controls. The failure to take this extra security measure can have dire – even criminal – consequences. Having everyone’s exchange money in a commingled account can destroy all the exchanges, as the clients of one QI recently discovered.
Gary Gorman
by Gary Gorman
Founding Partner,
The 1031 Exchange Experts

The intermediary, Nation-Wide Exchange Services, Inc. of St. Paul, Minnesota began day trading with its clients’ commingled exchange money. It didn’t take long before it lost a substantial amount. Nation-Wide then used incoming exchange funds from new investors to cover requests from existing clients for funds to cover their replacement purchases. This was essentially a Ponzi scheme of sorts: one bad situation covering up an already bad situation.

When the situation finally got to the point where Nation-Wide couldn’t cover its exchange requirements, it filed bankruptcy. A court-appointed trustee immediately decided that the single, commingled exchange account was a bankruptcy asset, meaning that the account was available for all creditors! The trustee then concluded that because the account was a bankruptcy asset, all money disbursed from the account during the 90 days before the bankruptcy had to be returned to the account. In other words, those clients that received their funds during that period for the purchase of their new property had to return them to the trustee! Imagine being told that the proceeds you used to buy your new property has to be returned to the courts and handed over to the creditors of the intermediary!

Some clients resisted and a court case ensued. The bankruptcy court ruled in favor of the trustee: the exchange monies held by the intermediary were bankruptcy assets available to general creditors because the intermediary held the money in a commingled account. The court also ruled that because the monies were bankruptcy assets, all disbursements from the account during the prior 90 days must be returned to the account.

The court’s reason for ruling with the trustee was that Nation-Wide used a commingled account. It ruled that “the lack of specific client instructions to segregate proceeds, and the Debtor’s (Intermediary’s) exercise of substantial control over the funds under contractual warrant, mean that the funds became the Debtor’s property upon receipt…”- by Gary Gorman, in The Colorado Real Estate Journal, 02.18.04
For more information, asistance, and help in making the best use of your resorces visit us at: http://www.offmarket-properties.biz/1031-exchange-investments.html

A combination of cost segregation and like-kind exchanges can save on real estate taxes.

The Best of Both Worlds

A combination of cost segregation and like-kind exchanges can save on real estate taxes.


COMBINING COST SEGREGATION AND SECTION 1031 exchange allows taxpayers to defer the maximum amount of income taxes. USING COST SEGREGATION, OWNERS CAN RECLASSIFY real property as personal property in order to obtain faster depreciation write-offs.

IN AN IRC SECTION 1031 EXCHANGE, real estate owners can defer the tax on the disposition of an appreciated property by acquiring a like-kind replacement property for investment or business use.

TAXPAYERS CAN USE COST SEGREGATION on replacement property acquired in section 1031 exchanges. This is a particularly good option if the owner is exchanging up in value.

IN CERTAIN SITUATIONS COST SEGREGATION may give rise to depreciation recapture as ordinary income in otherwise nontaxable exchanges.

For tax specialist assistance, please contact us at: 


Thank you.

ax-deferral strategies are a great way to minimize taxes, and cost segregation and IRC section 1031 exchanges are two of the most valuable tax-deferral strategies available to commercial real estate owners today. This article examines the interaction of these two strategies, the increased benefits that result from using them in combination, and the recapture issues that CPAs may encounter after the fact and how to plan for them.

Section 1031 exchanges of real estate have long been a favorite tax-deferral tool for owners. In these exchanges, business or investment property is disposed of through a qualified intermediary, and the proceeds are used to purchase a replacement property of like kind. This results in a deferral of all or most of the gain that otherwise would be subject to income tax on the disposed property. The replacement property has a carryover tax basis that is generally the value of the replacement property less the gain deferred in the exchange.

Value of Cost SegregationThe average cost segregation study identifies 25% to 30% of a property’s basis that is eligible for faster depreciation.

Source: DASI Cost Segregation Group LP.

New guidance from the IRS and some of the most taxpayer-friendly legislation since the Tax Act of 1986 also have made a second form of income tax deferral—cost segregation—increasingly popular. The primary goal of cost segregation is to identify building components that can be reclassified from real property to personal property. This results in a substantially shorter depreciable tax life and accelerated depreciation methods. Ordinarily, the cost of real, or section 1250, property is recovered over lengthy periods (27.5 and 39 years for residential and nonresidential property, respectively), using the straight-line method of depreciation. Personal, or section 1245, property is recovered over considerably shorter periods (5, 7 or 15 years), and employs accelerated or “front-end loaded” methods of depreciation, such as 200% or 150% declining balance.

When section 1250 property is reallocated to section 1245, the differences can be great. For example, installed carpet purchased with a facility is considered personal property for depreciation purposes and recovered in a 5- or 7-year period using the 200% declining balance method of depreciation. Otherwise the carpet generally would be included in the value of the real property and the cost would be capitalized and recovered on a straight-line basis over 39 years. It takes a unique combination of engineering and tax expertise to properly analyze construction information, compute industry-standard estimates and identify and segregate the subcomponent costs needed for cost segregation, however. CPAs without that expertise might consider hiring a consultant.

In a section 1031 exchange, real property must be replaced with real property in order to defer the gain. In general, the definition of real property under section 1031 is determined by state law. In contrast, the definition of real and personal property for tax-depreciation purposes is determined under federal law. State law tends to classify fixtures in a building as real property. Therefore, property such as wall coverings, carpeting, special purpose wiring or other installations affixed to the building can be considered real property under state law and like kind for section 1031 purposes, but personal property in cost segregation studies. Thus, real estate owners can benefit from both the gain deferral under section 1031 for real estate exchanges and the enhanced cost recovery deductions of the cost segregation study.

While it’s good news that real estate owners can take advantage of both cost segregation and section 1031 exchanges to defer the maximum amount of income taxes, the interaction of the two must be carefully examined. First, CPAs must determine whether a cost segregation study will be beneficial for a replacement property acquired in a section 1031 exchange with the carryover tax basis. Second, CPAs must consider depreciation recapture resulting from the cost segregation study if the property is later disposed of in a section 1031 exchange.

The taxpayer receives a carryover tax basis for the replacement property in a 1031 exchange, rather than a fair-market-value tax basis. Nevertheless, it is entirely feasible for taxpayers to benefit from a cost segregation study on the replacement property.

Let’s say, for example, that a taxpayer disposes of land and building property he has owned for six years with a value of $3 million and an adjusted basis of $1 million. He treated the entire building as section 1250 property for depreciation purposes. He then buys land and a building with a total value of $3 million, 85% of which is allocated to the building. Therefore, the basis in the building is $850,000 (85% x $1 million). A cost segregation study identifies the portions of the building that qualify as personal property and land improvements for depreciation purposes (but are still like kind for 1031 purposes). The result of a typical study on an office building might identify 10%, or $85,000, as land improvements, and another 15%, or $127,500, as personal property qualifying for a 7-year recovery period and the 200% declining balance method of depreciation. This leaves $637,500 as real, or 39-year, property.

The results of combining the two tax-deferral methods are a gain deferral from the section 1031 exchange of $2 million and an increase of $50,000 in depreciation deductions in the current year, resulting in reduced taxes of nearly $20,000, assuming a 40% ordinary income tax rate.

Note that section 168(k) includes regulations relating to the depreciation of the basis of the replacement property in an exchange under section 1031 for modified accelerated cost recovery system (MACRS) property. The carryover or “exchanged” basis of the replacement MACRS property is depreciated over the remaining recovery period of, and using the depreciation method and convention of, the relinquished MACRS property. Thus, in our example, the taxpayer could depreciate the exchanged basis for the building over the remaining 33 years on the straight-line method. The regulations also allow taxpayers to opt to treat the replacement MACRS property as MACRS property placed in service at the time of replacement if this results in a shorter recovery period. Using the cost segregation study results should yield more gain deferral.

Planning tip. Consider having your clients elect out of the section 168(k) rules if this results in a shorter recovery period and faster depreciation.

Also, taxpayers often exchange up in value and, under the 168(k) regulations, the taxpayer treats the “excess basis” in the replacement MACRS property as property that is placed in service in that taxable year. The depreciation allowances for the excess basis are determined using the applicable recovery period, depreciation method and convention prescribed under section 168 for the replacement MACRS property at the time of replacement. Therefore, the taxpayer can accelerate the depreciation deductions on the excess basis through the cost segregation study.

For example, John Smith disposes of land and building with a value of $4 million. The building has an adjusted basis of $1 million. He acquires land and building with a value of $6 million. The excess basis is $2 million; 85%, or $1.7 million, is allocated to the building. The “exchanged” basis in the building, $1 million, is depreciated under the prior method unless Smith elects out. The $1.7 million excess basis may be depreciated under an accelerated method as determined through the cost segregation study.

Planning tip. Cost segregation studies are most useful when the taxpayer is exchanging up in value significantly, or exchanging from nondepreciable property, such as land, to depreciable property.

Cost Segregation Reaffirmed
E ngineering-based cost segregation studies take assets that have been classified as real property for federal income tax purposes and, using engineering-based analysis techniques, segregate the property that should have been classified as personal property into the shorter, appropriate class lives. The engineering-based cost segregation study provides tax preparers with the information and supporting documentation needed to depreciate assets over the appropriate, shorter tax lives.Real property recovery periods range from 27.5 to 39 years and employ the straight-line method of depreciation. Personal property can be depreciated in as few as five years and employ a 200% or 150% declining balance method of depreciation. The result is an increase in current year depreciation expense due to a significantly shorter depreciable tax life and a front-end-loaded method of calculating the depreciation expense. The resulting increase in depreciation expense typically yields a significant decrease in income tax liability.

The legislation and procedures used in an engineering-based cost segregation study have been around since the enactment of the Investment Tax Credit (ITC) in 1962. With the repeal of the ITC and the enactment of the rules limiting passive losses in 1986, most companies assumed that engineering-based cost segregation provided no further benefit under the new tax law. However, in a 1997 tax court case, Hospital Corporation of America, the taxpayer successfully defended the application of engineering-based cost segregation as a method to differentiate real and personal property. The IRS now has acquiesced to the viability of engineering-based cost segregation as a legitimate method to differentiate real and personal property under current tax law.

Cost segregation generally reclassifies section 1250 property as section 1245 property for depreciation purposes. Land improvements, however, remain section 1250 property. Section 1245 property has significant depreciation recapture rules in a section 1031 exchange; generally the replacement property must contain the same value of section 1245 property as the relinquished property, or the taxpayer will recapture the difference (up to the realized amount) at ordinary income tax rates.

As an illustration, let’s say Joan Brown, the owner of a manufacturing facility, had a cost segregation study performed in 2000 that reclassified $1 million of real property as section 1245 property. By 2004, after realizing the benefits from $430,000 of depreciation deductions, Brown exchanged the facility for an office building of equal value and equity. Since the section 1245 property in the relinquished property still is valued at $1 million, Brown typically would pay no tax on the exchange.

However, the office building has only $700,000 of section 1245 property; the remaining $300,000 of value is section 1250 property. Therefore, Brown will recapture and pay ordinary income tax on $300,000 of the prior depreciation deductions due to the difference between the $1 million of section 1245 property in the relinquished property and the $700,000 of section 1245 property in the replacement property.

Despite the potential of future tax in a section 1031 exchange, cost segregation still can be justified due to the tremendous present value of the accelerated depreciation deductions. Based on the fundamental principle of the time value of money, a dollar saved today through reduced taxes always is worth more than a dollar in later years. Furthermore, Brown can exchange into other real property with similar amounts of personal section 1245 property and avoid the recapture tax altogether.

Planning tip. Tax advisers should alert taxpayers to the possibility of future depreciation recapture so they can anticipate paying some tax in the later exchange or acquiring replacement property with sufficient amounts of section 1245 property to avoid recapture. Taxpayers should look for replacement properties that have significant potential for section 1245 property.

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10 tips to boost your home’s appraisal

 Here are the top ways to keep your home’s look, feel and condition as updated and cared-for as possible.

By S. Mitra Kalita of The Wall Street Journal

  1. Spruce up the house. Appraisers say that you don’t need to deep-clean under couches and that a few dirty dishes won’t hurt your home’s value. But rats, cockroaches and that car you’ve been tinkering on might. “Things like overgrown landscaping, soiled carpeting, marks on walls — those do affect value and are part of the property’s overall condition rating,” said Dean Zibas, the president and chief appraiser for Zibas Appraisal in San Clemente, Calif. In other words, think broom clean, not set design for a home-decorating magazine.
  2. Curb appeal also matters, so mow the lawn, hack those weeds and trim those hedges. This can also help offset your house from unfair comparisons with foreclosures nearby. “In today’s climate, I can’t stress enough: condition, condition, condition,” said Doreen Zimmerman, an appraiser in Paradise, Calif. “An hour or two, for the most part, will set your home apart in the actual picture that the lender gets from the appraiser versus the actual picture that the appraiser will provide of the (foreclosure) down the street.”
  3. Keep a list of all the updates you’ve made and be ready to hand it over; a sketch plan of the house indicating square footage also helps. “Have a list of updating done within the past 15 years. Itemize each update with the approximate date and approximate cost. Also highlight the notable features of the property,” says Matthew George, the chief appraiser of Eagle Appraisals in Denver. Remember the items that an appraiser might not notice, such as a new roof or insulation. Don’t forget the minor items. For example, I mistakenly told the appraiser we hadn’t updated one bathroom, but actually we had installed a new sink and had the tub sealed. That counts, the experts say.
  4. Have comps on hand. Yes, this is the appraiser’s job, but every little bit helps — especially if you are aware of a nearby property that sold without the aid of a real-estate agent, says Mark T. Smith, the owner and president of Smith Appraisal Services in St. Augustine, Fla. That can mean it wasn’t posted on the multiple listing service, and can result in other delays by the time it gets posted through other government data sources.
  5. Be mindful of peeling paint. Loans insured by government agencies, such as the Federal Housing Administration or the Veterans Administration, will require peeling paint to be removed in houses built before 1978. But don’t worry too much about a child’s scrawling on his bedroom wall, unless it’s going to require a whole new paint job.
  6. Focus. “Don’t spend money that won’t yield a return on the investment. The best expenditures for most markets are paint, carpet, light and plumbing fixtures,” George says. Prioritize what you do; if you’re the type of homeowner who has upgraded and fixed items as they broke, you should be fine.
  7. Location still matters. If there have been changes to the neighborhood, mention them, from a new playground to a new Whole Foods. If the area has been declared a historic or landmark district, let the appraiser know.
  8. Keep the $500 rule in mind. Appraisers often value houses in $500 increments, so if there’s a repair costing more than $500 that can or should be made, it will count against the property. Fix leaky faucets, cracked windows, missing handrails and structural damage.
  9. Remember the concept of “effective age,” the age the appraiser can assign to a home after taking into consideration updating and condition. “Say you have a cracked window, threadbare carpet, some tiles falling off the shower surround, vinyl torn in the laundry room and the dog ate the corner of the fireplace hearth,” says  Zimmerman, who wrote the book “Challenge Your Home Appraisal” and runs a website by the same name. “These items could still add up to an overall average condition rating as the home is still habitable. However, your effective age will be higher, resulting in comparables being utilized which will have the same effective age and resulting lower value.”
  10. Lock up Fido and Fifi. Appraisers say they get annoyed enough by homeowners following them around, but a snarling, growling dog is even worse. Along the same lines, try to make the appraiser comfortable — if it’s cold out, put the heat on; if it’s hot out, the air conditioning. “If it’s 100 degrees out and you never put the air conditioning on, put it on for the appraiser so they don’t question that your unit is broken,” Zimmerman says.

With those things in mind, let the appraiser do his job. “Questions and banter may make the inspection go slow or make the appraiser miss something,” said James R. Gerot, a residential appraiser in Ottumwa, Iowa. “My inspections have a rhythm to them, so once I get started, interruptions are just that. Save questions until after.”


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