Answers to real estate FAQs on 1031s and more
My team and I regularly receive questions on real estate-related topics. In this blog post, I answer some of those questions as they are important and others likely need the answers.
Realty Transfer Fee
Question: What is the realty transfer fee and who can expect to pay it?
Answer: The Realty Transfer Fee, also known as “RTF,” is a fee imposed by the State of New Jersey to offset the costs of tracking real estate transactions. Upon the transfer of the deed to the buyer, the seller pays the RTF, which is based upon the property sales price.
The RTF rate is a graduated rate and there are two different structures, depending on whether the total consideration is over or under $350,000.
It is important to note that a 1% fee must be paid by the buyer on all real estate transactions over $1 million in all commercial and residential property classes. This is also known as the “Mansion Tax.”
1031 Exchange Identification Rule
Question: What happens if you list three properties as replacement properties for your 1031 exchange, but all properties are no longer available?
Answer: One of the requirements of a 1031 exchange is taxpayers must identify a list of properties for potential purchase within 45 calendar days. Whichever property is ultimately purchased must be on this list. The rule allows taxpayers to identify three properties without limitation. Those listed are property that may be purchased, however not all are required to be purchased. If more than three properties are identified, the IRS rules become narrower and stringent.
The list can be changed an infinite amount of times until midnight of the 45th day. If the taxpayer is beyond the 45th day, the list is unchangeable and only properties listed can be chosen to complete the exchange. If the properties are not available after the 45th day, a 1031 exchange cannot be completed and the transaction is not eligible for deferral under Code Section 1031.
Section 179 Expensing
Question: Did the Tax Cut and Jobs Act (TCJA) change 179 expensing for rental property owners?
Answer: A provision of the tax code, commonly known as Section 179 deduction, allows taxpayers to deduct the entire cost of eligible property in the first year it is placed in service. For rental real estate owners, eligible property includes the majority of improvements to the interior portion of a nonresidential building, provided the improvement is put to use after the date the building was placed in service
The TCJA expanded the definition of eligible property to include expenditures for nonresidential roofs, HVAC equipment, fire protection and alarm systems, and security systems.
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Have a burning real estate question? Email me and I’ll answer it in an upcoming post.