24A — August 16 - 29, 2013 — Mid Atlantic Real Estate Journal
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M id A tlantic R eal E state J ournal
know howKearny op- erates and receive the C Offering services and flexibility that the giant banks do not KearnyFederalSavingsBank yields community growth ont. from page 12A
By Scott Saunders & Pamela Michaels 1031 Exchanges and vacation homes
personal use of a dwelling unit occurs on any day in which the taxpayer is deemed to use the property for personal purposes, as defined un- der Section 2 8 0A ( d ) ( 2 ) (taking into a c c o u n t S e c t i o n 2 8 0A ( d ) ( 3 ) but not Section 280A(d)(4)). Rev. Proc. 2008-16 discusses Barry E. Moore v. Commis- sioner, T.C. Memo.2007-134, a 2007 Tax Court decision, which provides a good example of what will not qualify for a 1031 exchange of a vacation property. In Moore, the property owners exchanged a lakefront vacation property for another lakefront property. The property owners argued that both of these prop- erties were held for investment because of the potential for long-term appreciation, and thus qualified for tax deferral under Section 1031. However, the Court concluded that nei- ther property was held primar- ily for investment purposes, but were instead held for their personal use and enjoyment. In reaching this conclusion, the Court considered that: (i) the property owners never rented or attempted to rent the property to others; (ii) the prop- erty owners deducted mortgage interest as a “home mortgage interest” expense rather than investment interest expense; and (iii) the property owners did not take (and probably did not qualify for) depreciation or other tax benefits associated with an investment property including deductions for main- tenance expenses. Rev. Proc. 2008-16 provides a safe harbor for qualifying vacation homes for purposes of Section 1031, and meeting its requirements is the safest ap- proach. But property that does not meet the requirements of Rev. Proc. 2008-16 may never- theless qualify as relinquished or replacement property un- der Section 1031. There are a number of factors to consider in evaluating a possible 1031 exchange opportunity: Has the property been shown on one or more tax returns as an in- vestment property or property used in a trade or business, including the characteriza- tion of mortgage interest as deductible investment interest expense or business expense? Are the property improvements continued from page 3A
eligible for depreciation? Is the property used substantially as a personal vacation property or second home? The characteriza- tion of resi- dential prop- erty as held primarily for investment or for use in a trade or busi- ness is often unclear, and d e p e n d e n t upon the particular facts and circumstances. CONVERTING A VACATION HOME INTO AN INVESTMENT PROPERTY A property owner can pre- pare in advance for a potential Section 1031 exchange in the future by converting a vacation home or second home into a property held for investment. There are a number of steps that can be taken to accomplish this, which may include some of the following actions: -Keeping any personal use of the property to a minimum, under 2 weeks a year, and/or below 10% of the days the prop- erty is rented, if opting to stay within the parameters of Rev. Proc. 2008-16; -Hiring a local property man- agement company to make the property available for rental use; -Listing the property for rental on popular websites such as VRBO.com, rentals.com, ho- meaway.com, vacationrentals. com, etc.; and -Showing rental income on Schedule E of the property owner’s tax return and other tax treatment consistent with a rental investment property. As always, it is important to consult with your legal or tax advisor before engaging in a Section 1031 exchange. A care- ful review of the unique facts and circumstances of a vaca- tion property owner’s situation should be done before the deci- sion is made to proceed with an exchange. Scott Saunders is a senior vice president with Asset Preservation, Inc., a lead- ing national 1031 exchange qualified intermediary and wholly owned subsidiary of Stewart Title. Pamela Michaels is an attorney and vice president of Asset Pres- ervation, Inc. n As a “Qualified Intermediary” as defined in the Section 1031 regulations, Asset Preservation, Inc. is not able to provide legal or tax advice. Accordingly, you should review the details of your specific transaction with your own legal or tax advisor. Copyright, 2013.
members. “They are good for the re- gion. With people like Vince, the bank has gone further than I expected. You can’t even quantify what they’ve done for New Jersey.” Lou Reynolds, principal of Reynolds Asset Manage- ment, agrees that Kearny’s ability to understand the client leads to increased op- portunities. Reynolds has purchased and renovated four apartment buildings in Northern New Jersey with financing from Kearny Fed- eral Savings Bank. Although he is the principal owner, he works with other partners as co-owners to complete the ac- quisition and redevelopment of these often grand, yet mis- managed buildings. “Vince believes in what I’m trying to do and works with us,” said Reynolds. “Kearny has gone out of its way to satisfy the specific requirements of some of my partners. Other banks won’t do that, they want the loan to be the loan. I’ve dealt with big and small banks; Kearny is by far the most reasonable. They have worked fairly with me on every one of my condi- tions. Where they couldn’t make an adjustment, they worked with us to find com- mon ground. There’s not a single instance where they flat out told me no.” Eric Seidel, an associate with Marcus & Millichap Capital Corporation, adds that the bank understands the competition more than most. “Kearny can help virtually anyone and is willing to do the deal. They stay current and competitive in the mar- ketplace because they under- stand where their competi- tors are and where Kearny needs to be to win deals.” Marcus & Millichap is a nationally renowned, com- mercial real estate brokerage company. Their finance arm, named Marcus & Millichap Capital Corp. (MMCC) refers many multi-family and com- mercial mortgage opportuni- ties to Kearny. MMCC is a member of the Meadowlands Regional Chamber. Commit- ment to the Region As a community bank, Ke- arny Federal Savings Bank can offer services and flex- ibility that the giant banks
do not. All of the services are in New Jersey, which expedites approvals, applica- tions and all the stages of the lending process. The bank meets the highest standards of financial oversight, and is recognized by SNLFinancial, the provider of real-time news and in-depth analysis affecting commercial lending and the real estate market. Kearny’s commercial loan offerings also include se- cured and unsecured busi- ness loans, most of which are secured by real estate, but also include programs offered through the Small Business Administration (“SBA”) in which the Bank participates as a Preferred Lender. Many of Kearny’s SBAclients origi- nate through the bank’s membership in the Meadow- lands Regional Chamber, as well as the small businesses that deposit in its branches. Besides their involvement with Kearny Federal Sav- ings Bank, Messieurs Micco and Mazur are also board members of the Meadow- lands Regional Chamber. Mazur is the president, chief executive officer of Elegant Desserts, and formerly a partner at Mazur’s Bakery in Lyndhurst. Mazur also serves as Chairman of the Council of Regents for Feli- cian College. Throughout the years, Mic- co has received numerous accolades from the Mead- owlands Regional Cham- ber, where he served on the Board of Directors, Member- ship Committee and MRC’s Young Professionals Network (now the Emerging Leaders’ Network); and chaired the Ambassador’s Committee. In 2007, Vince was the recipient of the MRC’s Annual Lead- ership Award, now referred to as the Arlene Simpson Award). He has been emcee or facilitator of more monthly membership meetings and business card exchanges than he can count. “Everyone at the Mead- owlands Regional Chamber is like family to me,” said Micco, who was the benefi- ciary of an MRC Christmas Holiday Gift drive while deployed in Iraq, 2010-11. “I am involved because I know that building relationships is important for all our busi- nesses to thrive.” n
highest ef- ficiency and flexibility in bo r r owi ng for new ac- quisitions, renovations or recaptur- ing capital investment.
Scott Saunders Pamela Michaels
Vincent Micco
Golden Sun Rentals, a developer and long-time cus- tomer, has dealt with Kearny Federal in all facets of their customer service, starting small and growing as their financial service needs grew. Partners Michael Taramina and Steven Fortunato have worked with Kearny as bor- rowers and attorneys on all stages of loan applications and legal issues. “At Kearny, they say what they’ll do and do what they say, and that’s what it’s all about,” said Taramina. “It all begins with lending. There’s a certainty to their lending process and their timing, which allows us to plan, capitalize on opportunities, and set all the parts in mo- tion. We’ve built our busi- ness model on the financing we receive from Kearny. We know what we’re getting and it enables us to do more business.” Golden Sun Rentals is eli- gible for grants, tax credits and government subsidies; however, the company often goes directly through Kearny because it works faster and more efficiently. Taramina recognizes that Kearny has not experienced the problems that come with expansion because they remain strong advocates of their custom- ers. “Banks and brokers are fighting for our business. Kearny understands us. We have such an efficient relationship with them built on trust, though positive experiences from repeat busi- ness. The more financing we receive, the more investment we do, the more work there is for laborers, property manag- ers, plumbers, etc.” Taramina estimates that they do twice as much work because of the financing they receive from Kearny and has referred them to busi- ness associates and family
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