IRS to Examine 1031's

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If you or a client has used a Section 1031 tax-deferred exchange recently, hold on to your documentation, as the Internal Revenue Service is stepping up reviews of such transactions, according a Wall Street Journal report.  Urged by a recent Treasury report to do a better job of explaining 1031 rules, the IRS also is revising its reporting forms, publications, and other communications and will conduct an in-depth study of reporting and compliance issues regarding like-kind exchanges in the past decade.   In 2004, taxpayers filed more than 338,500 forms for like-kind exchanges, more than double the number in 1998, representing almost $74 billion in deferred taxes.

 From CCIM magazine, Jan-Feb 08

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Exchanging Vacation Homes under IRC 1031

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I got an email from Cindy Nosan from Orexco, “The 1031 Exchange Experts” today, regarding the tax deferral treatment of VACATION HOMES.  The email started like this:

Finally-IRS Guidance on Exchanging Vacation Homes Revenue Procedure 2008-16 Provides Safe Harbor

Until now, the issue of whether a vacation home qualifies for tax deferral treatment under IRC 1031 was the subject of much scrutiny and uncertainty.  To the delight of many tax practitioners, on February 15, 2007, the IRS eliminated that uncertainty by issuing Revenue Procedure (“Rev. Proc.”) 2008-16, effective March 10, 2008, which provides a safe harbor for exchanges of vacation homes (defined as “dwelling unit” in the “Rev. Proc.).  Now taxpayers can have a clear understanding of the circumstances under which the IRS will not challenge whether a vacation home will qualify as property “held for investment” under IRC 1031.

The email goes into length about the criteria, either email Cindy at cnosan@orexco1031.com  for more details, or myself and I will send you the remainder of her email.

This will help people better understand the rules for exchanging vacation homes.  Thanks Cindy.

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Construction Permit Number & $Value since 1999 in Douglas County

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The following excerpt from Alexandria Echo Press published February 15, 2008:

PERMITTED STRUCTURES BUILT IN DOUGLAS COUNTY

1999:   1,050 Structures

2000:  1,166 Structures

2001:  1,261 Structures

2002:  1,376 Structures

2003:  1,375 Structures

2004:  1,352 Structures

2005:  1,083 Structures

2006:   977 Structures

2007:   830 Structures

BUILDING VALUATION IN DOUGLAS COUNTY

1999:   $41,162.204

2000:   $42,048,012

2001:   $50,547,290

2002:   $53,896,429

2003:   $54,515,642

2004:   $45,103,250

2005:   $39,929,085

2006:   $45,773,563

2007:   $46,532,409

$ Value of construction was at it’s highest since 2003, that’s a good story.

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The Wealth Effect

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“For starters, home prices are not falling everywhere.  The declines currently being reported in some national price indices largely reflect substantial drops in home prices in a handful of markets, where prices soared earlier in the decade, and more modest gains in most other markets.  Prices are still rising in markets where 65 percent of the U.S. population lives.  Even if home prices do drop, we have had experience with the wealth effect before and the impact was far less dramatic than widely feared.  The bursting of the NASDAQ stock market bubble in 2000 and sell-off in the broader stock market triggered a $5.4 trillion dollar loss in household wealth between the first quarter of 2000 and the third quarter of 2002.  During this period, consumer spending slowed relative to income growth and the saving rate rose. 

In order for the housing slump to produce the same loss of wealth today that the stock market crash did earlier in the decade, we would need to see a 20 percent drop in home prices nationwide. 

(from WACHOVIA annual outlook , December 17, 2007)

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Foreclosures in Douglas County

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In talking with Sara today from the Douglas County Sherrif’s Department, she gave me the following data:  In 2004 there were 26 foreclosure sales,  in 2005 there were 35 sales,  in 2006 there were 41 sales,  in 2007 there were 89 sales.  To date, in 2008, there has been 10 foreclosure sales.

The report in July 2, 2007 of Foreclosures in Greater Minnesota, had projected 124 sales in 2007 for Douglas County, which would have represented .84% of the 2005 Household Inventory.  Fortunately, our number fell short of the earlier projection.

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Residential Inventory in Alexandria, MN

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On May 26, 2005 there were 469 residential homes listed in the mls.  On May 26, 2006 there were 614 residential homes listed.  On July 13, 2007 there were 663 residential homes listed.  This morning there are 500 residential homes on inventory.  We are still up over what this market used to run during the first part of this century, but presently down from the high of last year. 

 These stats are from the Greater Alexandria Area Association of Realtors MLS service.

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Ice Fishing Tournament- Alexandria, MN: The Good, The Bad, The Ugly

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Pete and Steffen ThomesCooking a Turkeyice-tournament-2008-005.jpgKeeping the Hole ClearBrother RocketBrotherHoly Cow!  That was some tournament.  Temperatures were below zero and the winds were gusting over 30mph.  We’re talking 30+ below wind chills with no shelters allowed on the ice.  It was impossible to jig fish, I set up a tip-up and left it.  Never got a fish, but no frustrating with a frozen bobber.  My son won a Aqua vue camera with a .33# perch and my fishing buddy won a Harley Davidson on a raffle ticket.  That made for a good day.  Three hours on the ice, because we could.  What an experience!

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Lake Home Inventory. Alexandria, MN

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On April 18, 2005 there were 143 lakehomes in the mls system.  On June 14, 2005 there were 218 lakehomes in the mls system.   On July 30, 2007, there were 417 lakehomes listed in the mls system.  This morning there were 217 lakehomes listed in the mls system.  Interesting statistic.  We shall see what the summer brings for inventory levels.

This information provided by the Greater Alexandria Area Association of Realtors Multiple Listing Service.

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Ice Fishing Contest here in Alexandria, MN

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This Saturday, on Lake LeHomme Dieu is the annual Ice Fishing Contest.  Prize package to be over $100,000.  Biggest fish wins a brand new Ford F-150 pickup truck.  Forecast is for 2 degrees above zero without the windchill.  Usual turnout is around 3000 people.

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Capital Gains Exclusion for Sale of Principal Residence

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Wow!  Thank You IRS!.  Effective January 1, 2008, IRC Section 121 was ammended.  Prior to the ammendment, individuals selling their principal residence were entitled to exclude $250,000 of gain from taxation and married couples could exclude $500,000.  Now, even if a married person’s spouse dies, the surviving spouse still get’s the benefit of the $500,00 exclusion within two years of the date of death of the spouse.

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