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Given the wave of mortgage foreclosures for commercial and residential real estate, as well as the sour economy forcing many current owners to renegotiate for better loan terms, you should know that these events could likely carry significant income tax consequences.

Internal Revenue Code section 61(a)(12) states that taxable gross income includes income from the cancellation of debt.  This is important for many property owners going through foreclosures, short sales, or seeking a reduced settlement payment on the balance owed on a mortgage note as they will incur income tax liability for debt cancellation. 

For example, the lender decides to foreclose on a property you own.  The bank auctions or sells the property for much less than the amount remaining on your loan with the lender.  Knowing that you may not have the funds to pay back the remaining balance on the loan, the lender “forgives” or “discharges” the amount you owe.  What the lender will do, however, is send you a 1099-IRS form stating that you received income from the lender in the amount of the loan that was forgiven.  You will have to pay income tax on that amount.

Another area where a taxpayer with property subject to a loan should exercise caution is when she is seeking to alter the terms of the loan instrument.  IRS Treasury Regulations state that a significant modification of existing loan terms can result in cancellation of indebtedness income, which is subject to income tax.  These significant modifications include, but are not limited to, altering interest rates, changing the payment schedule, substituting or releasing original collateral, and the addition or deletion of co-guarantor/co-obligors.

Tax consequences are one of many concerns that property owners need to consider if they are going through loan modifications or forced sales.  There are few exceptions where the IRS will exempt your debt cancellation from taxation, but you need to consult with an attorney to ensure your circumstances will result in no or minimal tax liability.  The professionals of Larsen & Teusink PC are experienced in reviewing lender agreements and negotiating on the behalf of property owners to best minimize their tax burdens.  Contact our office today to schedule a consultation.  678.553.2923.

Posted under Commercial Real Estate, Foreclosure, Property Law, Tax Law, Tax Planning

On June 4, 2010, Governor Purdue signed into law that may prove beneficial for homeowners seeking property tax relief during these difficult economic times.  This law may have an impact on how the values of homes and business properties are assessed, especially in areas where there have been significant foreclosures, distressed sales, short sales, etc.

In order to determine property values for local taxes, Georgia Code Section 48-5-2(3)(B) used to have language that stated the “tax assessor shall consider… foreclosure sales [and] bank sales.”  This previous language would only allow the assessor to “consider” such sales, but in practice, did not appear to have much force to bind the assessor to these transactions, despite the existence of neighboring properties plummeting in value.  Many neighborhoods and business properties have dropped off in home property values by over 75%.

With the passage of Senate Bill 346, the new Georgia Code Section of 48-5-2(3)(B) (effective on January 1, 2011) states that the “tax assessor shall apply… bank sales, other financial institution owned sales, or distressed sales, or any combination thereof, of comparable real property.”  There is a good argument that the “apply” language change creates a stronger requirement for assessors to automatically value a property based on local foreclosures, short and distressed sales, etc.  This argument is bolstered by the fact that there is new language the same code section that defines an arm’s length transaction as including a “distress sale, short sale, bank sale, or sale at public auction.” 

It is clear that the General Assembly wants you to have lowered assessments if your house falls within an area of increased foreclosures and similar distressed sales.  Whether county assessors will abide by these new laws is another matter.  The attorneys of Larsen & Teusink PC are experienced in handling property tax appeals throughout the Metro Atlanta Area and helping clients get a fair assessment value for their properties.  Contact one of our professionals today to schedule a consultation.  678.553.2923.

Posted under Foreclosure, Property Law, Real Estate Law, Tax Law

Even though our nation’s economy is floundering, there are many potentials out there for the savvy investor.  Many investors with ready funds have turned to taking advantage of the depressed real estate market.  As many homes and commercial buildings are going through forced sales due to foreclosure, investors with cash-in-hand are able to buy many of these properties at a discounted rate.  In order to protect and shelter that investment (as well as the investor’s other assets), however, one should consider shifting the recently purchased property to a newly formed business entity.

Why go through all of the hassle and extra cost?  Business formation and continued operation as a business will shield an investor from most personal liability for negligent acts and omissions tied to that particular property.  For example, if you own land that is residential real estate worth $50,000, and someone incurs injuries on your property in the amount of $100,000, without proper business formation, an individual could go after you in court for your personal assets for the entire $100,000, not just the property valued at $50,000.

Also, another added benefit of business formation and operation is that costs incurred through your activities for the business entity yield significant tax benefits.  If a parcel of property is held as an investment for at least a year and one day, the land is then considered a capital investment.  When sold, a capital investment is sold at a lower tax rate than ordinary income.  Additionally, having a business entity makes more accessible certain business deductions not otherwise available to casual investors of property.  All of these advantages would greatly outweigh the initial planning costs involved with hiring a skilled attorney.

To make the most of these and many other benefits, one should consult an attorney to determine how best to establish your real estate investment business entities.  The attorneys of Larsen & Teusink PC have extensive knowledge of tax and business law to best protect you from law suits and tax liability.  Contact one of our professionals today to schedule an appointment.  678.553.2923.

Posted under Business Law, Commercial Real Estate, Planning Law, Property Law, Real Estate Law, Tax Law, Tax Planning

If we made a list of common inquiries we were asked by clients about Chapter 7 Bankruptcy, the question at the top of the list would be, “Can I keep my house if I file for Chapter 7 Bankruptcy?”  If you have experience dealing with attorneys, you will not be surprised to hear that the answer is maybe.

There are two main types of debt incurred by a typical consumer, secured and unsecured.  An unsecured debt is one that is not guaranteed by an underlying asset such as a car or home.  The most typical form of unsecured debt is credit card debt.  A secured debt, as you might have guessed, is a debt guaranteed by and underlying asset.  A mortgage or security deed is a secured debt guaranteed by real property.  For most people the only mortgage they have is on their home.

If you fall behind on a secured debt the lender has the ability to take back possession of the underlying property and sell it to satisfy the debt.  For your home, this is typically done through foreclosure.

But what about your home?  Will you lose it if you file Chapter 7 Bankruptcy?  The answer is yes and no.  If you are current on your payments to the lender, then you will almost certainly be able to sign what is called a reaffirmation agreement with the lender which will allow you to keep the house.  If you are behind on your mortgage, then it is likely that the lender will be able to foreclose on the property and sell it despite the bankruptcy.

That is a long answer to a short question that does not even attempt to delve into the numerous other complexities involved in how your home will be affected by a bankruptcy.  Larsen & Teusink, PC has experience in real property law, bankruptcy and foreclosure.  To get a more in depth answer to your questions, please feel free to visit our website or call us at 678.553.2923.

Posted under Bankruptcy, Foreclosure, Real Estate Law