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Damages for Breach of Contract-Lost Profits Versus Liquidated Damages - TRCB
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Monday, June 22, 2009
Friday, June 19, 2009
Tuesday, June 16, 2009
How Long Do I Need to Hold A Property Before 1031 Exchanging?
Qualified Intermediaries are often asked about the holding period in a 1031 Exchange. Investors who are taking advantage of short-sales, foreclosures and REO’s need to be especially mindful of the 1031 Exchange rules.
Since 1031 is for deferring Long Term Capital Gains (LTCG) taxes, some advisors feel that holding a relinquished property for a minimum of one year is sufficient as LTCG is a holding period of “more than a year.” Additionally, if a property is held for over a year it will show up on two tax returns. The IRS takes a much more conservative approach in a Private Letter Ruling stating that a holding period of two years would be a “sufficient.” The IRS also created a “Safe harbor” for vacation home exchanges in a recent Revenue Procedure which includes a two year holding period for both the relinquished and replacement properties.
Given the IRS’s decisions in the above rulings most advisors prefer to see a holding period of two years. Holding period needs to be addressed on a case by case basis, taking into account investment intent as well as the facts and circumstances of an investor’s particular situation.
Always consult your attorney and tax advisors well before entering into an exchange contract
Since 1031 is for deferring Long Term Capital Gains (LTCG) taxes, some advisors feel that holding a relinquished property for a minimum of one year is sufficient as LTCG is a holding period of “more than a year.” Additionally, if a property is held for over a year it will show up on two tax returns. The IRS takes a much more conservative approach in a Private Letter Ruling stating that a holding period of two years would be a “sufficient.” The IRS also created a “Safe harbor” for vacation home exchanges in a recent Revenue Procedure which includes a two year holding period for both the relinquished and replacement properties.
Given the IRS’s decisions in the above rulings most advisors prefer to see a holding period of two years. Holding period needs to be addressed on a case by case basis, taking into account investment intent as well as the facts and circumstances of an investor’s particular situation.
Always consult your attorney and tax advisors well before entering into an exchange contract
Thursday, June 11, 2009
Zero may not be zero
Taxpayers Beware: Zero Profit Doesn’t Mean
Zero Capital Gains Taxes
My friends at OREXCO have advised, in this difficult market, many taxpayers are selling property in short sales or other transactions with no profit. Unfortunately, what many taxpayers do not understand is that property may be sold with no profit, but still be subject to significant taxable capital gain.
How is this possible? It is possible simply because gain results not just from appreciation in value, but also results from depreciation deductions taken during ownership of the property, gain deferred from previous transactions, and from borrowing against appreciated equity in a declining market. These adverse tax consequences can be avoided by engaging in a Section 1031 tax deferred exchange.
How to Determine Gain
The formula to determine taxable gain is: Sales price less adjusted basis1= taxable gain
Three Situations Resulting In No Profit, But Taxable Gain
1. Depreciation Recapture If a taxpayer takes depreciation deductions, those deductions reduce the taxpayer’s basis, thereby resulting in gain.
Example: Taxpayer acquires investment property A for $200,000. Taxpayer’s basis is therefore $200,000. During taxpayer’s ownership, taxpayer takes $138,500 of depreciation deductions, thereby reducing taxpayer’s basis to $61,500. Taxpayer sells Property A for $180,000.00. Even though taxpayer sells the property for $20,000 less than what he originally purchased it for, he still has a taxable gain of $118,500 ($180,000-$61,500=$118,500) which will result in approximately $41,500 in federal and state taxes. This adverse tax result can be avoided by exchanging the property in a tax deferred exchange rather than selling the property.
2. Carryover Gain If a taxpayer sells property previously acquired in an exchange – at no profit or even at a loss – the taxpayer may still be faced with significant taxable gain.
Example: Taxpayer originally acquired Property A for $20,000. Taxpayer disposed of Property A in a tax deferred exchange for $100,000 and acquired Property B for $150,000, thereby deferring taxes on $80,000 of gain. Taxpayer’s adjusted basis in Property B is $70,000 ($150,000 purchase price-$80,000 carryover gain=$70,000). Taxpayer now proposes to sell Property B for the same price as he purchased it for – i.e. $150,000. Although Taxpayer is not making a profit on this transaction, he will still have significant federal and state taxes of approximately $28,000 on his gain of $80,000.
3. Excess Borrowing If a taxpayer borrows against appreciated equity in their property, tax consequences can also result if the property thereafter declines in value and the taxpayer is forced to sell the property for little or no profit.
Example: Taxpayer acquired property A for $1,000,000, paying $200,000 cash and borrowing $800,000. Taxpayer’s basis is $1,000,000. During Taxpayer’s ownership, the property appreciates in value to $1,400,000, enabling Taxpayer to refinance the existing loan of $800,000 with a new loan of $1,120,000. Taxpayer now sells, but since property values have declined, his selling price is $1,120,000. Although Taxpayer will receive no cash from the sale, he will still have taxable gain of $120,000 ($1,120,000-$1,000,000=$120,000), with combined federal and state taxes of $42,000.
As illustrated by the foregoing examples, sales of property that yield little or no cash can still result in taxable gain. Before selling in a down market, taxpayers and their advisors should first determine the taxpayer’s basis in the property to be disposed of and thoroughly discuss upfront the potential tax consequences. Taxpayers can avoid any of the tax consequences noted in these examples by engaging in a IRC §1031 tax deferred exchange.
Taxpayers contemplating an exchange should always consult their tax or legal advisor.
1Basis = Original purchase price
Adjusted Basis = Basis plus improvements less depreciation
Zero Capital Gains Taxes
My friends at OREXCO have advised, in this difficult market, many taxpayers are selling property in short sales or other transactions with no profit. Unfortunately, what many taxpayers do not understand is that property may be sold with no profit, but still be subject to significant taxable capital gain.
How is this possible? It is possible simply because gain results not just from appreciation in value, but also results from depreciation deductions taken during ownership of the property, gain deferred from previous transactions, and from borrowing against appreciated equity in a declining market. These adverse tax consequences can be avoided by engaging in a Section 1031 tax deferred exchange.
How to Determine Gain
The formula to determine taxable gain is: Sales price less adjusted basis1= taxable gain
Three Situations Resulting In No Profit, But Taxable Gain
1. Depreciation Recapture If a taxpayer takes depreciation deductions, those deductions reduce the taxpayer’s basis, thereby resulting in gain.
Example: Taxpayer acquires investment property A for $200,000. Taxpayer’s basis is therefore $200,000. During taxpayer’s ownership, taxpayer takes $138,500 of depreciation deductions, thereby reducing taxpayer’s basis to $61,500. Taxpayer sells Property A for $180,000.00. Even though taxpayer sells the property for $20,000 less than what he originally purchased it for, he still has a taxable gain of $118,500 ($180,000-$61,500=$118,500) which will result in approximately $41,500 in federal and state taxes. This adverse tax result can be avoided by exchanging the property in a tax deferred exchange rather than selling the property.
2. Carryover Gain If a taxpayer sells property previously acquired in an exchange – at no profit or even at a loss – the taxpayer may still be faced with significant taxable gain.
Example: Taxpayer originally acquired Property A for $20,000. Taxpayer disposed of Property A in a tax deferred exchange for $100,000 and acquired Property B for $150,000, thereby deferring taxes on $80,000 of gain. Taxpayer’s adjusted basis in Property B is $70,000 ($150,000 purchase price-$80,000 carryover gain=$70,000). Taxpayer now proposes to sell Property B for the same price as he purchased it for – i.e. $150,000. Although Taxpayer is not making a profit on this transaction, he will still have significant federal and state taxes of approximately $28,000 on his gain of $80,000.
3. Excess Borrowing If a taxpayer borrows against appreciated equity in their property, tax consequences can also result if the property thereafter declines in value and the taxpayer is forced to sell the property for little or no profit.
Example: Taxpayer acquired property A for $1,000,000, paying $200,000 cash and borrowing $800,000. Taxpayer’s basis is $1,000,000. During Taxpayer’s ownership, the property appreciates in value to $1,400,000, enabling Taxpayer to refinance the existing loan of $800,000 with a new loan of $1,120,000. Taxpayer now sells, but since property values have declined, his selling price is $1,120,000. Although Taxpayer will receive no cash from the sale, he will still have taxable gain of $120,000 ($1,120,000-$1,000,000=$120,000), with combined federal and state taxes of $42,000.
As illustrated by the foregoing examples, sales of property that yield little or no cash can still result in taxable gain. Before selling in a down market, taxpayers and their advisors should first determine the taxpayer’s basis in the property to be disposed of and thoroughly discuss upfront the potential tax consequences. Taxpayers can avoid any of the tax consequences noted in these examples by engaging in a IRC §1031 tax deferred exchange.
Taxpayers contemplating an exchange should always consult their tax or legal advisor.
1Basis = Original purchase price
Adjusted Basis = Basis plus improvements less depreciation
Friday, May 15, 2009
Valuing Commercial Property in the 2009 Market.
In determining your value today the exit CAP rate assumption would have to be no less than 8.5%. A recent CoStar study shows that the mean CAP rate for the past 20 years in commercial real estate properties has been about 8.5%. During the correction in the early 1990’s the CAP rate surpassed 8.5% and reached as high as 10-11% and then settled back down to about 8.5. It wasn’t until the early 2000’s with the tidal wave of credit and money flowing into commercial real estate, that CAP rates compressed as low as 5%. Now they’re going up.
A prudent buyer will plan on a vacancy carry of at least 20 months. If you’re going to buy a commercial real estate asset today with significant vacancy, plan on carrying it for the next 20 months, at a minimum. You should also price rent reductions of 20-30% into your cash flow analysis to allow for the re-pricing that’s taking effect today.
Your discount rate should align with market expectations. Sophisticated commercial real estate buyers are chasing paper where they’re earning 12-13% returns. In order for buyers to be attracted to the risks with owning and operating commercial real estate, the returns must be higher, which means you should plan on at least a 15% discount rate for the term of your investment. Discount your projected sales price and periodic cash flows at 15+% to today’s present value. There’s your number.
Happy Investing!
www.buyinginatlanta.com
aricasper@gmail.com
Skype: ari.casper
http://www.linkedin.com/in/aricasper
http://twitter.com/aricasper
http://www.atlantadesinetwork.com/profile/AriCasper
A prudent buyer will plan on a vacancy carry of at least 20 months. If you’re going to buy a commercial real estate asset today with significant vacancy, plan on carrying it for the next 20 months, at a minimum. You should also price rent reductions of 20-30% into your cash flow analysis to allow for the re-pricing that’s taking effect today.
Your discount rate should align with market expectations. Sophisticated commercial real estate buyers are chasing paper where they’re earning 12-13% returns. In order for buyers to be attracted to the risks with owning and operating commercial real estate, the returns must be higher, which means you should plan on at least a 15% discount rate for the term of your investment. Discount your projected sales price and periodic cash flows at 15+% to today’s present value. There’s your number.
Happy Investing!
www.buyinginatlanta.com
aricasper@gmail.com
Skype: ari.casper
http://www.linkedin.com/in/aricasper
http://twitter.com/aricasper
http://www.atlantadesinetwork.com/profile/AriCasper
Friday, May 1, 2009
Shalom, Aasalaamu Aleikum, Namaste,
Hello, Aasalaamu Aleikum, Namaste, to my gas station clients and Shalom chaverim, to all my circle of friends.
As most of you know, although most of my clients are Muslim, Hindu, or Sheikh, I myself am a Jewess and it is out of my own tradition that I speak this week.
Each week we study a different section of our Holy Book, or Scroll, if you will…Torah. A parasha is a segment of Torah. This week’s double Torah parasha, Acharei Mot (After the death)/Kedoshim (Holiness) begins with Aaron’s sons Nadav and Abihu dying—as you can imagine, his whole world has been turned upside down. In order to restore order to Aaron and the Israelites’ lives, God issues numerous commandments for various activities. By following these commandments not only can order be restored, but one will come closer to experiencing holiness.
To me, one of the most meaningful of these commandments is found in verse 14: “Do not curse the deaf or put a stumbling block in front of the blind.”
This phrase does not refer to just those who are permanently impaired. We all suffer from some form of deafness or blindness, intentional or not. Our greatest appreciation for others is when they open our eyes and ears to which we did not or could not hear or see.
In business, this really is applicable in representing your business for sale and in purchasing a new business for yourself. None of us knows everything about everything, so don’t be afraid to use an agent, an attorney and an accountant when making such a big decision.
• Don’t sign a binding agreement before discussing it thoroughly with your agent and attorney.
• Use the services of a licensed real estate agent or business broker in your negotiations.
• Don’t trust an agent who won’t give you his real estate license number. Check his record with the Real Estate Commission or the Commercial Board of Realtors. http://www.grec.state.ga.us/clsweb/realestate.aspx Don’t pay commissions to people who are not licensed. If they are comfortable with breaking state laws, how honestly will they look after your interests? If you are employing them on a consulting basis, it should be on a fee basis during your due diligence period, perhaps for helping with permits or licensing applications or traffic analysis.
• Consider hiring an appraiser before you sell. That will allow your agent to market your property more aggressively and you will be more likely to get close to your full asking price.
• Keep accurate financial information. Even if your profit and loss statement is not un-audited, don’t fudge the numbers. The more honestly you approach any purchase and sale the happier all parties to the transaction will be in the end. Show all your expenses, not just the major ones. Little expenses add up and may make the difference in profitability and failure. Don’t be in the position of promising the moon and not being able to deliver.
This may seem like an impossible amount of work to do in preparing for a purchase or sale of your business. As a broker, rather than allow my clients to view this work as a stumbling block, Petro Business Services greatest strength lies in our ability to get our clients to realize that the work is not there to trip them up, but rather to help them accomplish the goals that they set out to achieve at the beginning of the purchase or sale of the business.
We are here to help with your gas station acquisition or disposition. Whether you are buying or selling, allow us to guide you through the process and recommend others who can help remove your stumbling blocks.
Shalom, Dhanaydad, Khudafiz
Success Always,
Ari Casper
As most of you know, although most of my clients are Muslim, Hindu, or Sheikh, I myself am a Jewess and it is out of my own tradition that I speak this week.
Each week we study a different section of our Holy Book, or Scroll, if you will…Torah. A parasha is a segment of Torah. This week’s double Torah parasha, Acharei Mot (After the death)/Kedoshim (Holiness) begins with Aaron’s sons Nadav and Abihu dying—as you can imagine, his whole world has been turned upside down. In order to restore order to Aaron and the Israelites’ lives, God issues numerous commandments for various activities. By following these commandments not only can order be restored, but one will come closer to experiencing holiness.
To me, one of the most meaningful of these commandments is found in verse 14: “Do not curse the deaf or put a stumbling block in front of the blind.”
This phrase does not refer to just those who are permanently impaired. We all suffer from some form of deafness or blindness, intentional or not. Our greatest appreciation for others is when they open our eyes and ears to which we did not or could not hear or see.
In business, this really is applicable in representing your business for sale and in purchasing a new business for yourself. None of us knows everything about everything, so don’t be afraid to use an agent, an attorney and an accountant when making such a big decision.
• Don’t sign a binding agreement before discussing it thoroughly with your agent and attorney.
• Use the services of a licensed real estate agent or business broker in your negotiations.
• Don’t trust an agent who won’t give you his real estate license number. Check his record with the Real Estate Commission or the Commercial Board of Realtors. http://www.grec.state.ga.us/clsweb/realestate.aspx Don’t pay commissions to people who are not licensed. If they are comfortable with breaking state laws, how honestly will they look after your interests? If you are employing them on a consulting basis, it should be on a fee basis during your due diligence period, perhaps for helping with permits or licensing applications or traffic analysis.
• Consider hiring an appraiser before you sell. That will allow your agent to market your property more aggressively and you will be more likely to get close to your full asking price.
• Keep accurate financial information. Even if your profit and loss statement is not un-audited, don’t fudge the numbers. The more honestly you approach any purchase and sale the happier all parties to the transaction will be in the end. Show all your expenses, not just the major ones. Little expenses add up and may make the difference in profitability and failure. Don’t be in the position of promising the moon and not being able to deliver.
This may seem like an impossible amount of work to do in preparing for a purchase or sale of your business. As a broker, rather than allow my clients to view this work as a stumbling block, Petro Business Services greatest strength lies in our ability to get our clients to realize that the work is not there to trip them up, but rather to help them accomplish the goals that they set out to achieve at the beginning of the purchase or sale of the business.
We are here to help with your gas station acquisition or disposition. Whether you are buying or selling, allow us to guide you through the process and recommend others who can help remove your stumbling blocks.
Shalom, Dhanaydad, Khudafiz
Success Always,
Ari Casper
Monday, April 20, 2009
Spring Into Prosperity
PREPARE TO PROSPER OR PREPARE TO SELL;
BOTH
As most of you know my business is all about convenience stores and Gas stations. In our businesses spring brings us to a point every year where we are ready for renewal. The winter slow months have finally passed and the car wash business is about to pick up with the arrival of pollen in the air. This also is a good time to take a business inventory…not the merchandise kind, but a review of your business systems and the physical plant of your station. Here are some “spring into action” ideas I got from Darcee Santicloa and have incorporated into our action plan.
FOR THE STORE
PAINTING: A fresh coat of paint works wonders! Is the blue on your Chevron canopy faded to pastel? Is the red or yellow striping on your Shell station faded or peeling?
This is the time to touch up these little details. Then there’s what Darcee considers “creative painting”. Adding color can create customer’s purchasing excitement. This may be as simple as directing your customers to your Grab and Go, or perhaps to draw attention to specific promotional displays. This is always an inexpensive solution. Painting of graphics is one of a designer’s tricks in creating an illusion of spaciousness. Also, a change of scenery for employees has been proven to create an increase in productivity. If budget permits, having a professional work out a schematic especially designed for your store is well worth the investment, however if this is not possible, browsing through the trade publications such as Convenience Store News, CSP or NPN with a keen eye for inspiration can be helpful in achieving your goal. For the sake of your customers, don’t overlook the bathrooms. They should be as clean as a kitchen, if you want to keep your clientele.
LIGHTING: Having a well lit store and canopy is essential. New energy saving devices can cut your electric bill while giving you more light. Adding a few specialty fixtures in featured areas creates warmth and a sense of quality for your customers. A wide range of pricing for these fixtures is readily available in accommodating your needs. It’s a quick way to give a modern update to a space. Consider the use of the vendor’s neon signs against a dark back ground to add a little excitement to the ambiance. It gives you a free source of additional décor without giving up even one inch of floor or shelf space.
FLOOR REARRANGEMENT: Rearranging shelving and cooler space from time to time is so important. Creating a new traffic pattern engages customer interest while providing longer store visits. It also helps to stimulate employee’s interests as well. This also gives you a chance to clear out the windows so that people can see in and out. Clear the way to your high profit items, get the square footage producing your highest dollar.
SPECIAL PROMOTIONAL DECORATING: Take full advantage of this opportunity. It’s all about creating excitement. Holidays give us an excuse to have fun with this and really go for it.
FOR THE EMPLOYEES
EMPLOYEE IMAGE: Providing new uniforms or uniform shirts is a great morale booster. Sometimes just a change of color or style modification is all that’s needed. These days all brands offer clothing lines that can suit various needs: from shirts and ties with embroidered logos to golf shirts in a wide range of colors to T-Shirts with printed logos for “Casual Weekend” wear. A consistent image for your individual business is as important as the brand recognition at the pumps.
EMPLOYEE RECOGNITION
PROMOTIONAL SALES LEADER: This idea is one of Darcee's and
CUSTOMER SERVICE: Providing a “paid” training session is extremely productive. In these economic times it’s more important than ever to give exceptional customer service especially with your regulars. Having a staff show a special recognition to them means so much. When a customer was greeted by their name or having their customary purchase remembered they became loyal customers for a long time to the point of making special trips just to receive such treatment. Employees need a refresher on company policies dealing with customer service. Again, there’s added and updated data and manuals available to owners by our friends at Condevco and others for just this purpose. At Petro Business Services, we offer on site training or remote for your staff at a minimal charge. We also offer utility auditing to insure that you are paying the minimum legal amount for your utilities.
A little spring cleaning and a smile can renew your profitability and make new friends. Doing one or all of these “spring actions” can increase your profits or make buyers want your location over someone else’s.
Success Always,
Ari Casper
Petro Business Services, Inc
Commercial Real Estate and
Business Brokers for C- Stores
www.pbsga.com
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