Magazine article Journal of Property Management

TO SELL, OR NOT TO SELL: Property Managers Play Critical Role in Advising Owners

Magazine article Journal of Property Management

TO SELL, OR NOT TO SELL: Property Managers Play Critical Role in Advising Owners

Article excerpt

WITH MANY PROPERTY OWNERS IN POSSESSION OF UPSIDE-DOWN PROPERTIES OR STRUGGLING WITH CASHFLOW PROBLEMS DUE TO TENANTS UNABLE TO PAY CONSISTENTLY, YOU MAY BE FACED WITH A CLIENT (OWNER) WHO IS CONSIDERING SELLING ONE OR MORE PROPERTIES. WhUe the decision to sell is ultimately up to the owner, you can help by pointing out that when and how he sells can be just as important as whether he sells or not.

Short Sale/Cancellation of Debt

A client owning an upside-down property may find relief through a short-sale agreement with his lender. While this, or similar debt relief like loan restructuring can help the owner shed a troubling debt, it could create a surprise tax liability. The amount of debt forgiven or discharged by a lender is generally included in the borrower's taxable income in the year in which it is forgiven. This could leave an already strapped owner owing a significant amount in tax, without the cash to pay it.

Like-kind Exchange

When disposing of property at a gain, owners often use the "like-kind exchange" provision of Internal Revenue Code §1031 to defer recognition of the gain, thereby deferring the related tax. Under §1031, when real estate used in a trade or business, or held for investment, is sold or exchanged for another piece of real estate to be used in a trade or business or held for investment, gain or loss will not be recognized on the transaction. The gain or loss ends up being deferred as part of the new property's basis.

After December 31, 2010, however, tax rates are scheduled to increase. …

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