A — April 26 - May 9, 2013 — Mid Atlantic Real Estate Journal MAREJ A dvertisers D irectory
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Mid Atlantic R eal E state J ournal Publisher ............................................................................Linda Christman Publisher ...............................................................................Joe Christman Section Publisher ................................................................Elaine Fanning Section Publisher ....................................................................Steve Kelley Senior Editor/Graphic Artist ................................................ Karen Vachon Office Manager ....................................................................Joanne Gavaza Contributing Columnists .......................................................... Chris Sayre Mid Atlantic R eal E state J ournal ~ Published Semi-Monthly P.O. Box 26 Accord, MA 02018 (Mail) 312 Market Street, Rockland, MA 02370 (Overnight) Periodicals postage paid at Rockland, Massachusetts and additional mailing offices Postmaster send address change to: Mid Atlantic Real Estate Journal, P.O. Box 26, Accord, MA 02018 USPS #22-358 | Vol. 24 Issue 8 Subscription rates: $99 - one year, $198 - two years, $4 - single copy REPORT AN ERROR IMMEDIATELY MARE Journal will not be responsible for more than one incorrect insertion Toll-Free: (800) 584-1062 | MA: (781) 871-5298 | Fax: (781) 871-5299 www.marejournal.com The views expressed by contributing columnists are not necessarily representative of the Mid Atlantic Real Estate Journal
Mid Atlantic Real Estate Journal
To advertise, call 1-800-584-1062 Aldo Design Group................................................6A All-Rite Construction..........................................20B ALT Realty..........................................................10B AmeriBid...............................................................3C American Boiler Co.............................................12A Asset Preservation................................................4A B.R. Kreider & Son...............................................4B Barton Partners............................................... FC-B Beacon Commercial RE..................................IBC-C Bennett Williams................................................20B Bill Boards Directory...................................... IBC-A BL Companies.....................................................20B Bohler Engineering........................................... IC-B Brasler Properties...............................................19C Breslin Realty. ................................................IBC-B Business Card Directory.....................................27A Capitol Aerials.....................................................18A CBRE...................................................................14C Cervelli Management. ........................................15C CREATE................................................................8B Cushman & Wakefield........................................18C Deerwood Real Estate Capital.............................1C Door & Gate. .......................................................16C Earth Engineering................................................4B Ehrlich, Petriello, Gudin & Plaza......................13A Entech..................................................................18A Exchange Solutions........................................... IC-C FAMECO RE.........................................................3B Fortna Auctioneers. ............................................27A Fowler..................................................................21A FRK Attorneys at Law..........................................4C Gilbeaux Associates, PC.....................................18A Greenberg Gibbons...............................................8B Haftek CWS. .........................................................9A Hillmann Consulting..........................................20C Hirschman Realty Management........................17C Hutchinson Mechanical........................................9C IREM..............................................................22-23A Jewel Electric Supply Co....................................10A Jottan................................................................ 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BC-C Metro Commercial RE..........................................4B ROCK.....................................................................4B NAI Emory Hill.....................................................6C NAI Summit........................................................10B NJAA. ..................................................................16A NorthMarq. ...........................................................7C NRC Realty & Capital Advisors...........................1A NorthMarq. ...........................................................3A P. Cooper Roofing................................................14A PennCap Properties............................................15A Poskanzer Skott Architects..................................7A M. Miller & Son.....................................................8A RD Management........................................... 16-17B Real Property Capital...........................................5C Regal Bank..........................................................11C Retail Brokerage Directory. ...............................18B Retail Business Card Directory. ........................19B Retailer Space Seeking Guide............................15B Rhino Realty Group............................................12B Security Resource. ................................................3A SILBERT.............................................................13B Specialty Building Systems................................ 11A St. John Properties.............................................11B Stout & Caldwell.................................................13C SUBWAY................................................................7B Target Building Construction. .............................9B The Azarian Group. ..............................................1B The Green Group................................................10C The Kislak Co......................................................12C TPD......................................................................12B TRG........................................................................2B USGBC NJ..........................................................20A Whitestone Associates........................................13B WP Realty..............................................................5B LMS Commercial RE............................................6B Zamir Equities......................................................2B
By Chris Sayre Net Investment Income Tax 3.8% & 1031 Exchange
T
he Affordable Care Act, which took ef- fect on January 1,
2013, imposed a new 3.8% tax on certain income. First of all the tax only applies to taxpayers with AGI greater than $200,000 for single and $250,000 if married. Next the tax is levied on the LESSER of net investment income or the amount of AGI over the above threshold limits. Net investment income (NIIT) is fairly broad and includes: interest income, dividends, rental income, and capital gains on the sale of property. These rules are contained in I.R.C. section 1411. It is easy to see that the threshold amount can be eas- ily exceeded in those years where real estate transactions occur. I.R.C. Section 1031 allows taxpayer to defer gain on the sale of real property, includ- ing long term capital gains and recaptured depreciation. Does it also defer the new tax on investment income? The I.R.S. has issued pro- posed regulations under I.R.C. section 1411 which contain this language: 5.C.2.ii “the income tax gain and loss recognition rules in chap- ter 1 apply for purposes of determining net gain under section 1411. Thus, for ex-
ample, to the extent gain from a like-kind exchange is not recognized for income tax pur- poses under section 1031, it is not recognized for purposes of determining net investment income under section 1411.” Thus 1031 exchanges are more powerful than ever. The Net Investment Income Tax (NIIT) also will not ap- ply to any amount of gain that is excluded from gross income under I.R.C. section 121. The pre-existing statu- tory exclusion in IRC section 121 exempts the first $250,000 ($500,000 in the case of a mar- ried couple) of gain recognized on the sale of a principal resi- dence from gross income for regular income tax purposes and, thus, from the NIIT. Here is an example of how this all works together: B and C, a married couple filing jointly, sell their princi- pal residence that they have owned and resided in for 2
of the last 5 years for $1 mil- lion. B and C’s cost basis in the home is $400,000. B and C’s realized gain on the sale is $600,000. The recognized gain subject to regular income taxes is $100,000 ($600,000 realized gain less the $500,000 IRC section 121 exclusion). B and C have $125,000 of other Net Investment Income, which brings B and C’s total Net In- vestment Income to $225,000. B and C’s modified adjusted gross income is $300,000 and exceeds the threshold amount of $250,000 by $50,000. B and C are subject to NIIT on the lesser of $225,000 ( Net In- vestment Income) or $50,000 (the amount B and C’s modi- fied adjusted gross income exceeds the $250,000 mar- ried filing jointly threshold). B and C owe Net Investment Income Tax of $1,900 ($50,000 X 3.8%). Chris Sayre, 1031x.com, Inc. in Denver, CO. n
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