Resources
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[p] 267.639.4706
[f] 267.639.4792
West Palm Beach, FL
440 Columbia Drive
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Fort Lauderdale, FL
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The Real Estate Advisor
Winter 2012 l September/October 2011 l July/August 2011 l May/June 2011 l March/April 2011 l Archive
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Business interruption (BI) insurance can help commercial real estate owners augment their income stream for the period that tenants can’t fully use their space or business can’t be fully conducted. This type of coverage typically isn’t sold as a standalone policy, but is instead added on to one’s property or comprehensive business insurance policy. It’s especially important for those who count on rental income to service their debts. This article explains how BI insurance works and how lost income is computed. 
To help secure a construction loan, it pays to understand the lender’s mindset. This article offers a primer on how to get the job done. It explains the loan process and discusses four ratios that lenders use to scrutinize a loan request: loan-to-value (LTV), loan-to-cost (LTC), debt-service-coverage, and net-worth-to-loan-size. 
Real estate investors are increasingly forming single-member limited liability companies (SMLLCs) to hold properties — or interests in partnerships that hold properties — and protect themselves from certain liabilities. Part of the attraction lies in the fact that SMLLCs can be classified by the IRS as “disregarded entities,” meaning they’re ignored for income tax purposes. But investors should bear in mind that these entities can produce undesirable tax consequences if they hold partnership interests. This article examines the federal tax implications, while a section looks at other taxes that may be involved. 
With financing difficult to obtain, a borrower might have only one shot with a lender. But loan request packages that lack information or are difficult to sort through will likely end up behind the more complete and organized ones. So the most effective way of increasing the odds is to submit a solid package. This article provides a list of documents that a lender is likely to request. 
A grantor retained annuity trust (GRAT) can help a business owner minimize gift and estate tax liability associated with transferring ownership interests while retaining an income stream for a specified period of time. And it may be particularly powerful in the current economic environment, where the lifetime gift tax exemption is high and the value of a business may be lower than it was a few years ago. This article describes the nuts and bolts of this irrevocable trust, along with IRS rules on the trust instrument used to create a GRAT. A section compares a GRAT with a grantor retained unitrust (GRUT) and grantor retained income trust (GRIT). 
This article looks at a number of year end strategies that take advantage of enhanced bonus depreciation; shorter time periods for depreciation under the Modified Accelerated Cost Recovery System (MACRS); and deferring taxable income to next year and accelerating deductions to this year. It also discusses the tax implications of retirement planning, charitable giving, and hiring one’s children to work in the family business. 
Tax law changes passed last year opened the doors for some major tax savings on 2011 business purchases. Under the temporary modifications to Section 179 expensing rules, one might be able to deduct — rather than depreciate over a number of years — costs related to qualified leasehold-improvement, restaurant and retail-improvement property. The article explains what’s included in these three forms of property, along with the deduction amounts that apply. 
The commercial real estate market remains rocky. Historical assumptions about rent growth, lease renewals, and similar issues are less reliable than in the past. That means due diligence for new transactions will require more intensive effort and a broader, more conservative focus. This article describes three kinds of information that must be reviewed, and steps that go beyond traditional due diligence. 
Real estate professionals enjoy some tax benefits that aren’t available to other taxpayers, but the professional must meet strict rules to qualify as one. For example, it’s necessary to perform more than 750 hours of real estate–related services. But does being “on-call” qualify for hours worked? This article looks at one case in which the Tax Court disallowed the claims of a couple that they met the requirement because the husband had been on-call to perform activities related to the rental properties. A section explains why they additionally had to pay a penalty. 
Flipping foreclosures may seem like a tempting investment opportunity, but it isn’t for the fainthearted. It often requires a lot of work, research and money — it may take thousands of dollars to repair perhaps years of neglect and to make the property salable. And the property may come with hidden surprises, such as federal tax liens, partial interests, leased land, and other liabilities. This article describes some of the considerations involved and the options available, including bank-owned foreclosed properties and preforeclosures. 
With the real estate market still sluggish, some property owners are wondering: Would they be better off surrendering their property, rather than continuing to struggle with the loan obligations? Although the answer may seem obvious, discharging debt in this way can have significant tax consequences that should be considered. This article looks at the tax consequences of defaulting on recourse vs. nonrecourse loans. 
Property owners who’ve had trouble locking down sales are offering potential buyers a gradual approach to purchasing their property — lease options. Although a lease option may not be the ideal structure for a sales transaction, it offers some attractive benefits, especially in today’s down market. This article explains how lease options work and their potential benefits and drawbacks.
Property owners often wrestle with how to classify their repair and upkeep costs — are they routine maintenance costs, which are immediately deductible against current income? Or are they capital expenditures that must be recovered over time through depreciation? This article discusses proposed IRS regulations that would help clarify how such costs should be treated for tax purposes. As a section explains, the regulations also provide that “inherently facilitative” transaction costs must be capitalized. 
Choosing the right business structure for a real estate venture requires serious thought. A corporation is one possible structure that can provide many benefits, but this article takes a closer look at noncorporate options, which generally are subject to fewer rules and regulations and may offer more flexibility. Specifically, it discusses general partnerships, limited liability companies (LLCs), and limited liability partnerships (LLPs). 
The U.S. Tax Court recently ruled against the IRS in a dispute over the proper period of depreciation for street lights. The IRS had claimed that the lights were subject to a 20-year period, but the court held that they’re subject to a period of only seven years. This article shows that, as a result of this ruling, owners of property with a significant number of street lights could recover the costs of the lights much more quickly. But, as the IRS continues its initiative against faster property depreciation rates, this case underscores the importance of applying common sense and revisiting the plain language of the law when battling the IRS. 
Recent tax law changes have prompted many owners to reassess their plans for transferring real estate and other assets to their heirs. One vehicle worth considering is the family limited partnership (FLP). It can help owners limit gift and estate taxes related to asset transfers, while still retaining some control over the property. This article examines the advantages and pitfalls of an FLP. 
Those who are having trouble securing traditional financing for new projects might want to consider the Federal Housing Administration (FHA) mortgage loan insurance programs. The programs facilitate long-term nonrecourse mortgages originated by FHA-approved lenders for certain multifamily housing projects. This article discusses these loan programs, while a sidebar offers a suggestion regarding how to expedite the loan process. 
Professionals who juggle the daily ins and outs of the commercial real estate business might not give much thought to whether they’re a dealer or an investor. But the distinction can have a significant impact on their bottom line because of the different tax treatments associated with each category. This article discusses how the IRS distinguishes between dealers and investors, and the tax advantages/disadvantages associated with each category. 
A real estate professional is uniquely qualified to invest in real estate as part of their personal retirement savings plan. They have great expertise, and real estate tends to be less volatile than stocks. But viewing properties as long-term investments for retirement rather than current income-producers can involve a shift in thinking. This article discusses types of real estate investments that are well suited for a retirement plan. 
The rocky landscape for commercial real estate has pushed many owners to the brink of foreclosure. For those who’ve fallen behind on their mortgage payments, though, a deed in lieu of foreclosure (DILF) may be a less cumbersome process. This article looks at the advantages and explains what to expect from lenders.