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April, 2010 - Newsletter for the Maui Market
Aloha! Here is your eNewsletter for the Maui Market from Jim Foster and visit our web site when you have time www.JamesBFoster.com for searching properties on the Maui MLS or researching sales under the tab Condo Sales for all the major complexes individually or for 2010 to date, 2009, 2008 and all of the MLS statistics.
Recently in Barrons, there was an article with the top ten vacation home or second home markets in the United States and Maui was number ONE! For a copy of the article or HTML link to read the article send me an email.
Hot Buys for April, 2010 - If you are looking for some excellent buys in the Kaanapali area here are some suggestions: 1) Home in the Kaanapali Hillside area that is an REO 3 bedrooms with 2.5 baths on a 11,257 SF lot; 2) Bank REO that is a spectacular estate home for $2,950,000 with 4.5 bedrooms, 4 full and 2 half baths, office, exercise room and pool. This home contains 4,336 square feet, a lot with 20,550 square feet and sweeping panoramic ocean views and luxurious quality construction throughout; 3) Three lots that are REO properties, with two in the Lanikea subdivision of Kaanapali price at $399,000 for a 12,628 SF lot and $799,000 for 2 40,816 SF lot, also in Honolua Ridge subdivision a 5.8 acre lot for $995,000. All of these properties have excellent long term growth potential and we are very close to the bottom of the real estate market. For photos and details send me an email or call 1-888-661-7994.
We have a list of Short Sales and REOs for residential and condominium properties in West Maui and Short Sales and REOs for unimproved residential properties or lots. If you would like the details please send email. For a complete list of REOs and Short Sales in West Maui or the entire island send email request to Jim@JamesBFoster.com or would like to be notified daily of new listings or price changes that are REOs or Short Sales call me on my toll free number 1-888-661-7994 or email me at Jim@JamesBFoster.com
If you specifically are interested in a Short Sale or REO properties, you can now search on my web site www.JamesBFoster.com the Short Sales & REOs on Maui in the MLS. Email me and I will email you back the instructions on how do to do the search. There are a substantial number of Short Sales and REO properties for sale in the Maui Realtors Association Multiple Listing Service (MLS) and the number is increasing and if you would like to have a list or are interested in these types of properties send an email to Jim@JamesBFoster.com
New IDX Search Features - on www.JamesBFoster.com Search properties and you can search for Short Sales, REOs, by location and other categories. If you would like directions on how to use email me at Jim@JamesBFoster.com and I will email instructions.
Make sure you check out the Useful Internet Sites and Real Estate Tips at the end of this newsletter.
Don't forget! We provide a free Automatic E-mail Notification Service that goes out to recipients whenever a new listing becomes available for a particular condominium complex. Each of these notifications includes a link to view the details of the brand new listing in the MLS. We DO NOT SHARE YOUR EMAIL ADDRESS or your contact information with anyone. To subscribe to our Automatic E-mail Notification Service, please send Won an email at Won@JamesBFoster.com with your first and last name, your email address, and the condominium property you wish to be notified of.
Maui Real Estate - To view the year end 2007, 2008, 2009 & year to date 2010 Sales Statistics go to http://www.jamesbfoster.com/condosales.php and click on Maui MLS Statistics 2009 and 2010.
The West Maui Real Estate Market
Honua Kai Resort & Spa is Maui’s newest and finest Resort, Luxury Condominium, hosting; Studio Apartments, One bedroom, Two bedroom, and Three bedroom Residences, located on Kaanapali North Beach’s pristine shoreline. The Honua Kai Resort & Spa’ s valuable and scarce Resort Zoning allows for both Residential and Vacation Rental use. As an owner of the Honua Kai Resort and Spa, you may choose to enjoy your residence as a Primary Residence, or Secondary Vacation Residence. The Honua Kai’s Resort Zoning also enables you to vacation rent your residence at those times you are not there to enjoy it. Should you decide to off-set your expenses you may do so by vacation renting your residence. There are several ways to accomplish this, you may Self Manage, In-House Resort Manage, or Third Party manage. The choice is yours. Sales Prices begin with Studios from $615,000, One Bedrooms from $619,000, Two Bedrooms from $995.000 and Three Bedrooms from $2,229,000
Buyers in the market currently, for the most part, are looking for deals or the lowest prices. We are seeing improvement in the number of showings and increased bookings for vacation rental. The current inventory of West Maui condominiums for sale is now at 649 (at 4/2/10) and on the same month in 2009 it was 799. Properties are requiring approximately five to six months to sell and in many instances, longer. Buyers have a much larger inventory of properties for sale to choose from than at the height of the market. If you’re curious about current trends in Maui real estate and where the market is headed, the answer is - it depends on Location - it depends on if it is condominium or single-family residential - it depends on whether you look at volume, average or median prices. In the current Maui real estate market, the for sale inventory continues to increase and prices are typically flat or have decreased.
Condominiums for Sale
2007 - In the West Maui real estate market, at the beginning of January, 2007 there were 410 condominiums listed for sale with the total value of $372,238,031.00; February, 2007 - 431 condos with the total value of $393,681,669.00; March, 2007 - 458 condos with the total value of $420,941,268.00; April, 2007 - 479 condos with the total value of $429,708,159.00; May, 2007 - 472 condos with the total value of $424,095,260.00; June, 2007 - 455 condos with the total value of $415,187,129.00; July, 2007 - 475 condos with the total value of $432,797,008.00; August, 2007 - 469 condos with the total value of $420,479,301.00; September, 2007 - 474 condos with the total value of $430,914,408.00; October, 2007 - 471 condos with the total value of $423,631,002.00; November, 2007 - 466 condos with the total value of $416,008,907.00; and December, 2007 - 485 condos with the total value of $421,080,117.00. The average number of condominiums for sale on West Maui for 2007 was 462 and the average total value was $416,730,118.25.
2008 - At the beginning of January, 2008 there were 511 condominiums listed for sale with the total value of $445,656,447.00; February, 2008 there were 559 condos with the total value of $500,946,603.00; March, 2008 - 595 condos with the total value of $529,779,322.00; April, 2008 - 647 condos with the total value of $606,635,687.00; May, 2008 - 634 condos with the total value of $583,391,821.00; June, 2008 - 644 condos with the total value of $590,736,279.00; July, 2008 - 680 condos with the total value of $662,919,268.00; August, 2008 - 703 condos with the total value of $693,069,348.00; September, 2008 - 693 condos with the total value of $654,411,079.00; October, 2008 - 673 condos with the total value of $620,032,454.00; November, 2008 - 715 condos with the total value of $652,379,032.00; and December, 2008 - 729 condos with the total value of $660,335,998.00. The average number of condominiums for sale on West Maui for 2008 was 648 and the average total value was $604,191,111.50.
2009 - At the beginning of January, 2009 there were 742 condominiums listed for sale with the total value of $693,143,047.00; February, 2009 there were 757 Condos with the total value of $709,234,346; March, 2009 there were 787 Condos with the total value of $681,864,289; April, 2009 there were 805 Condos with the total value of $693,368,793; May, 2009 there were 717 Condos with the total value of $629,812,465; June, 2009 there were 691 Condos with the total value of $591,075,527; July, 2009 there were 692 Condos with the total value of $588,385,017; August, 2009 there were 682 Condos with the total value of $575,359,815; September, 2009 there were 662 Condos with the total value of $540,291,317; in October, 2009 there were 662 Condos with the total value of $527,367,912; in November, 2009 there were 636 Condos with the total value of $486,410,609; and in December, 2009 there were 629 Condos with the total value of $495,645,642. The average number of condominiums for sale on West Maui for 2009 is 705 and the average total value is $600,996,564.92.
2010 - At the beginning of January, 2010 there were 608 condominiums listed for sale with the total value of $511,345,892; February, 2010 there are 643 Condos with the total value of $519,749,801.00; March 2010 there were 681 Condos with the total value of $549,060,756.00; and April 2010 there are 649 Condos with the total value of $516,570,310. The average number of condominiums for sale on West Maui from 1/1/2010 to 4/1/2010 is 645 and the average total value is $524,181,689.75.
The condominium for sale inventory since July, 2005 has been as low as 165 and was up to 805 in April, 2009 with the current inventory of 645 on April 2, 2010.
Condominium Sales
2006 - The total condominium sales on West Maui during the month of January, 2006 there were 42 sales and the total value was $28,574,643.00; February, 2006, there were 48 sales with total value of $32,995,078.00; March, 2006 - 40 sales with total value of $32,199,584.00; April, 2006 - 43 sales with total value of $41,898,525.00; May, 2006 - 51 sales with total value of $39,644,886.00; June, 2006 - 40 sales with total value of $32,533,500.00; July, 2006 - 30 sales with total value of $26,212,000.00; August, 2006 - 28 sales with total value of $31,885,500.00; September, 2006 - 30 sales with total value of $24,770,000.00; October, 2006 - 29 sales with total value of $23,359,299.00; November, 2006 - 22 sales with total value of $13,414,600.00; and December, 2006 there were 30 sales with total value of $23,169,999.00. For 2006, the monthly average sales were 36 sales per month with the average sales value of $29,221,467.83 per month.
2007 - The total condominium sales for West Maui during the month of January, 2007 there were 37 sales and the total value was $33,091,000.00; February, 2007 there were 26 sales with total value of $16,330,000.00; March, 2007 - 32 sales with total value of $24,121,000.00; April, 2007 - 27 sales with total value of $16,766,000.00; May, 2007 - 28 sales with total value of $30,774,929.00; June, 2007 - 28 sales with total value of $18,917,000.00; July, 2007 - 21 sales with total value of $13,314,200.00; August, 2007 - 32 sales with total value of $33,258,999.00; September, 2007 - 23 sales with total value of $24,701,900.00; October, 2007 - 42 sales with total value of $28,159,900.00, however this included a packaged sale of 19 units at Aina Nalu in Lahaina; November, 2007 - 15 sales with total value of $15,930,000.00; and December, 2007 there were 13 sales with total value of $13,335,500.00. For 2007, the Month of December saw the lowest number of sales in 2007. The monthly average sales were 27 sales per month with the average sales value of $22,391,702.33 per month.
2008 - The total condominium sales for West Maui during the month of January, 2008 there were 20 sales and the total value was $16,184,800.00; February, 2008 there were 20 sales and the total value was $14,414,584.00; March, 2008 - 26 sales and the total value was $20,079,000.00; April 2008 - 28 sales and the total value was $20,488,500.00; May 2008 - 22 sales and the total value was $20,055,000; June 2008 - 14 sales and the total value was $11,957,000; July 2008 - 10 sales and the total value was $6,955,999; August 2008 - 13 sales and the total value was $8,055,000; September 2008 - 12 sales and the total value was $6,707,122; October 2008 - 12 sales and the total value was $8,042,500; November 2008 - 10 sales and the total value was $8,444,000; and December 2008 there were 6 sales and the total value was $6,265,000. For 2008, the average monthly sales were 16 sales per month with the average sales value of $12,304,042.08 per month.
2009 - The total condominium sales for West Maui during the month of January, 2009 there were 76 sales and the total value was $95,573,286.00; February, 2009 there were 54 sales and the total value was $68,795,841.00; March, 2009 there were 37 sales and the total value was $32,979,595.00; April, 2009 there were 23 sales and the total value was $13,142,872.00; May, 2009 there were 11 sales and the total value was $8,879,500.00; June, 2009 there were 18 sales and the total value was $12,530,000.00; July, 2009 there were 28 sales and the total value was $30,196,900.00; August, 2009 there were 25 sales and the total value was $17,891,397.00; September, 2009 there were 14 sales and the total value was $5,684,550.00; October, 2009 there were 23 sales and the total value was $14,202,856.00; November, 2009 there were 19 sales and the total value was $9,850,550.00; and December, 2009 there were 35 sales and the total value was $39,598,000.00. For 2009, the average monthly sales were 30 sales per month with the average sales value of $29,110,445.58 per month.
Condominium Sales in 2010 - The total condominium sales for West Maui during the month of January, 2010 there were 31 sales and the total value was $21,104,950.00; February, 2010 there were 46 sales (12 were in Konea – Honua Kai) and the total value was $43,926,209.00; and March, 2010 there were 72 sales (39 were in Konea – Honua Kai) and the total value was $85,051,544. From January 1, 2010 to April 2, 2010, the average monthly sales were 50 sales per month (or 33 per month if you back out the Konea sales in Honua Kai) with the average sales value of $50,027,567.67 with the Konea sales factored in.
We have gone in to the Maui MLS database and pulled information for 2000 through 2008. In 2000 - 654 condominium units sold in the West Maui area for a total value of $209,064,010; in 2001 - 605 condominium units sold for a total value of $271,681,337; in 2002 - 730 condominiums sold for a total value of $240,178,915; in 2003 - 737 condominiums sold for a total value of $319,748,466; In 2004 - 700 condominiums sold for a total value of $375,033,467; in 2005 - 682 condominiums for a total value of $408,582,315; in 2006 - 435 condominiums for a total value of $351,782,614; in 2007 - 327 condominiums for a total value of $271,290,428; in 2008, - 193 condominium units sold for a total value of $147,648,505; and in 2009, - 363 condominium units sold in the West Maui area for a total sales value of $349,325,347.00.
If you would like to view the most current sales statistics for Maui or West Maui Condominiums, you can go to my web site www.JamesBFoster.com and click on Condo Sales in the upper left corner of the home page or go to www.JamesBFoster.com/condosales.php
Mortgage Rates as of April 2, 2010 - from First Hawaiian Mortgage - Rates: Houses & Condos Full docs: 4.875% 30yr fixed 2.00pts (4.997 APR) 5.125% 30yr fixed 1.00pts (5.249 APR) 5.25% 30yr fixed -0- pts (5.375 APR) Stated Income - No longer available: Interest Only To $625,500: 5.875% 30 yr fixed (10/20)1.000pts (6.076 APR) Interest Only to $1M: 6.00% 30 yr fixed(10/20) .000 pt (6.117 APR) Condotels 5.75% 30 yr fixed 1.25pts (6.056 APR) (Points include origination fee)
Mortgage Rates as of March 1, 2010 - from First Hawaiian Mortgage - Rates: Houses & Condos Full docs: 4.625% 30yr fixed 2.00pts (4.745 APR) 4.750% 30yr fixed 1.00pts (4.871 APR) 5.00% 30yr fixed -0- pts (5.123 APR) Stated Income - No longer available: Interest Only To $625,500: 5.75% 30 yr fixed (10/20)1.000pts (6.036 APR) Interest Only to $1M: 5.875% 30 yr fixed(10/20) .750 pt (5.945 APR) Condotels 6.125% 30 yr fixed 1.25pts (6.312 APR) (Points include origination fee)
Mortgage Rates as of February 3, 2010 - from First Hawaiian Mortgage - Rates: Houses & Condos Full docs: 4.875% 30yr fixed 1.500pts (5.090 APR) 5.000% 30yr fixed .750pts (5.148 APR) 5.125% 30yr fixed -0- pts (5.207 APR) Stated Income - No longer available: Interest Only To $625,500: 5.875% 30 yr fixed (10/20)1.000pts (6.036 APR) Interest Only to $1M: 5.875% 30 yr fixed(10/20) .750 pt (5.945 APR) Condotels 6.125% 30 yr fixed 1.25pts (6.312 APR) (Points include origination fee)
Mortgage Rates as of January 1, 2010 - from First Hawaiian Mortgage - Rates: Houses & Condos Full docs: 5.125% 30yr fixed 1.625pts (5.354 APR) 5.250% 30yr fixed .500pts (5.378 APR) 5..375% 30yr fixed -0- pts (5.458 APR) Stated Income - No longer available: Interest Only To $625,500: 6.125% 30 yr fixed (10/20)1.500pts (6.035 APR) Interest Only to $1M: 6.000% 30 yr fixed(10/20) 1.000pt (6.079 APR) Condotels 6.500% 30 yr fixed 1.00pts (6.687APR) (Points include origination fee)
Some recent and past news about what is going on in Maui & Hawaii
Weather - As I am writing this newsletter today, April 2, 2010, it is about 81 degrees and sunny. Between now and April 13th we are expecting showers and windy conditions, but sometimes only potions of the day and the rest of the day can be great. Maui weather is as near to perfection as you can get.
Chase N Rainbows Real Estate - Vacation Rental Management and Bookings for Travel Information - Need a sun break? if you're tired of the rain and cold you can get away now! Call us (877.647.9575) to check availability and book today. We can place any condo on a courtesy hold while you firm up your flights. Remember to check for low fares and use the fare finders at Kayak.com & Vacapedia.com. Sign up for e-mail reminders with Travelocity and Priceline too! www.ChaseNRainbows.com Sign up for Monthly Newsletter.
Alaska Airlines Direct Connect To Maui – When Aloha Airlines went out of business tourists from the Sacrament area had to detour through Honolulu. Now they can fly directly to Kahului with daily service between Kahului and Sacramento, Calif. Fares vary depending on the season and day of the week of a flight, but airline officials said prices are competitive with those of other airlines. For ticket information and reservations, go online to www.alaskaair.com or call (800) 252-7522.
Pace of Foreclosures Appears To Be Slowing – The foreclosure crisis is not over but the number seems to be slowing. Banks repossessed nearly 79,000 homes last month, down 10 percent from January but still up 6 percent from February 2009. A record 2.8 million households were threatened with foreclosure last year and the number is expected to rise to more than 3 million homes this year.
Makena Resort and Maui Prince Hotel up for April auction - The 1,800-acre property formerly known as Makena Resort and the Maui Prince Hotel will be up for public auction April 29 in the lobby of the Wailuku courthouse. The transaction is a fee-simple sale, with no minimum bid required, according to the notice of foreclosure. The auction comes after Maui developer Everett Dowling and Morgan Stanley Real Estate defaulted in August on $192.5 million in loans for the original purchase price of $565 million in 2007 from the Japanese firm, Seibu. The auction is for the entire property. That includes 36 holes of golf, 18 of which need to be rehabilitated before reopening, a clubhouse, 2,500 square feet of retail space, 5,200 square feet of meeting rooms, three restaurants and bars, a swimming and wading pool and snack bar, seven outdoor areas for weddings and parties, Jacuzzis and a lattice work of hiking and mountain-biking trails. The real prize, aside from shoreline access points such as Makena Landing, is 1,300 acres of vacant land. That's because Makena Beach & Golf resort also has an assortment of lucrative Maui County residential and commercial entitlements for further development, which County Council members approved at the end of 2008 to spur construction jobs that never materialized.
Hawaii’s Recovery Has Begun – Arrivals are predicted to gain about 2.9% for the entire year by the University of Hawaii Economic Research Organization. UHERO is forecasting a real gross domestic product figure. Although the recovery may have begun, it still forecasts a small contraction for this year, negative 0.2 percent. That would be an improvement on the 1.3 percent contraction the economists estimated for 2008 and the 0.4 percent contraction in 2009. UHERO forecasts Hawaii's overall gross domestic product will grow in 2011, by 0.5 percent. UHERO notes that visitor spending, construction employment and building permits all seemed to bottom out by the end of 2009.
Casting Call For Maui Movie – The movie, "Just Go With It," starring Adam Sandler and Jennifer Aniston had a casting call in Kihei on March 27th. Sandler's Happy Madison production company will arrive in Wailea next month for four to six weeks of filming on the comedy at the Wailea Resort. This is the first time in over a decade that Maui County has seen three major productions in the first and second quarters of a year. Clint Eastwood and a Warner Bros. crew filmed three days of the upcoming supernatural thriller "Hereafter" in Lahaina in January. The hit ABC sitcom "Modern Family" shot the final episode of its first season in Wailea earlier this month. Sandler's "Just Go With It" is expected to bring Maui tens of millions of dollars in economic stimulus, said a source close to the production.
Resort Real Estate Market Close To The Bottom - We are either at the bottom or close to the bottom of the real estate market low. Resort residential real estate - both condominiums and single-family houses - did a gross business of better than $2.5 billion in 2005, 2006 and 2007. The slump brought the total down to less than $1.7 billion in 2008 and to $1.3 billion last year. Average prices fell 20 percent in 2009. Despite the crash in the number of transactions, which dropped by more than half, Hawaii resort real estate prices kept going up. Developers rushed to build on all islands, selling units up front for high prices. But it took typically two years to build, and a project begun in the flush times of 2006 looked much different to buyers in 2008. As a result, the average closed price in 2009 was $1,240,831, down from $1,552,536 in 2008, which was the record year for prices. The resale market prices peaked in the second quarter of 2007 at $1.5 million and fell steeply to $1 million by the middle of 2009 and have stabilized.
And as prices have stabilized, transactions have increased from about 125 per quarter to about 200 in the last quarter of last year. The largest number of buyers in the market currently are the bargain hunters with cash and ability to finance. Taking the 30-year view, there have been only four periods when average resort retail prices did not rise: a slight but short dip in 1985, a slight but prolonged dip from 1991 to 1996, a short, sharp dip after Sept. 11, 2001, and now the steepest, sharpest drop ever. That is for the market as a whole. As the resale figures show, the real fall in the perception of values began as early as 2007 and has now lasted three years - about half the length of the mid-'90s downturn.
Attorney in Lahaina - Gary Robert resides in West Maui and has been providing legal services here for over 30 years in Lahaina. His office is located at 808 Wainee Street, Suite 201, Lahaina, Maui, Hawaii 96761. To contact Gary - Tel: 808-667-7741
Fax: 808-667-7550 Email grlaw@hawaiiantel.net Web site www.garyrobertlaw.com
Business Law - Corporations, Partnerships, LLCs & Contracts.
Real Estate Law - Conveyances, Mortgages, Foreclosures, Landlord - Tenant, Partitions, Associations, Wills, Trusts, Probate, Family Law and Divorce.
Remodeling or Upgrading condominium or house - It is critical to have a licensed contractor and subcontractors with excellent references and experience working with Maui properties if you will be Remodeling or Upgrading a condominium or house Should you need assistance or referrals for a property you own or need an estimate for property you are contemplating purchasing, all Jim Foster on his toll free number 1-888-661-7994 or send him an email to Jim@JamesBFoster.com and we can provide names and contact information as we have contact information for several reputable contractors for both remodeling and new construction.
Installation of Home Entertainment Systems - If you are looking for an experienced company for Home Theater Systems, Whole House Sound Systems, Telephone & Computer Network Wiring, HD TV Specialist/Blu Ray, Complete Color Calibration System and Universal Remote Control Systems and much more - contact Jason Vizthum with Integral Technologies in Lahaina. Phone is 1-866-420-3013 and Cell is 808-214-4212. Licensed, excellent referrals and a West Maui resident. www.integraltechmaui.com Email for Jason integraltech@hawaii.rr.com
Real Estate & Financial Planning Tips:
Depreciation Recapture Issues in a 1031 Exchange
Depreciation - You are required to deduct or write-off a certain percentage of the cost of the structures and/or improvements on your real property held for rental, investment or use in your business as depreciation expense each year. The depreciation deduction recognizes the decrease in the value of the property caused by wear, tear and usage.
Investment real estate is depreciable when it is placed in service; not when acquired.
To qualify for depreciation deductions, your tangible or intangible property must
be used in your business; be income-producing, or held as investment property;
be property in which you have a capital investment; have a determinable useful life;
have an expected life of more than twelve (12) months; and not be excepted property.
Property held for personal use, such as a home, second home, vacation home, or automobile, cannot be depreciated since it is not held for investment. Inventory held primarily for sale, including real estate investments, cannot be depreciated.
You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. You can also depreciate certain intangible property, such as patents, copyrights, and computer software.
Depreciation Recapture - You may be required to "recapture" the depreciation deducted by you on your real estate investment property upon the disposition (sale) of the investment property. This means that you may have to recapture or add back into your taxable income the amount of depreciation taken on your investment property when you dispose of (sell) your investment property, unless you take advantage of any number of tax-deferred or tax-exclusion strategies available to you. Depreciation allowed or allowable, whether deducted or not, must be included in the depreciation recapture income tax computation upon the disposition (sale) of your real estate investment.
Income Tax Rates – Typically, you will find yourself subject to the maximum Federal capital gain income tax rate of 15%. However, you may not know that depreciation recapture is taxed for Federal income tax purposes at a substantially higher flat rate of 25%. You may be subject to state or local income taxes as well. Real estate that has been held and depreciated over an extended period of time may be subject to significant depreciation recapture income tax liabilities and may be a big reason you decide to participate in a 1031 exchange.
Section 1250 Property (Depreciable Real Property) - Generally, real estate investment property, as defined under Section 150 of the IRC, must be depreciated for income tax purposes. The depreciation method used depends on a number of factors including when the investment property was placed into service, the type of investment property, and the depreciation methods allowed under applicable tax laws and regulations at the time the investment property was placed into service. A more complex set of rules comes into play when the asset sold is depreciable real estate. This is so because, in that case, a maximum rate of 25% will apply to what's called un-recaptured section 1250 gain and a maximum rate of 15% will apply to the balance of the gain. “Un-recaptured section 1250 gain” refers to the portion of gain that is eligible for capital gain treatment even though it is attributable to previously allowable depreciation. A further complication is that the portion of the gain that is un-recaptured section 1250 gain depends, as shown below, on when the property was placed in service.
Property placed in service after 1986. For real estate placed in service after 1986, all depreciation deductions allowable before the sale of the real estate give rise to un-recaptured section 1250 gain. Thus, if you sell, at a gain of $200,000, a building on which $90,000 of depreciation deductions were allowable to you through the time of sale, $90,000 of the gain is un-recaptured section 1250 gain that will be taxed at a rate of 25%. The remaining $110,000 of the gain will be taxed at a rate of 15%. Property placed in service before 1987 and after 1980. For real estate placed in service before 1987, but after 1980 (pre-1987 realty), the treatment of gain on sale depends on whether the real estate is residential or nonresidential.
Residential Real Estate - If you depreciated residential pre-1987 realty using just straight line depreciation, the tax results if you sell it will be the same as for a sale of post-1986 property, as described above. But if (as was possible) you, at any time, used a declining balance method to depreciate the real estate, the gain on sale would be taxed as follows: Gain, to the to the extent of the depreciation claimed that exceeds what would have been allowable under straight-line depreciation, will be recaptured as ordinary income, and, thus, taxed at rates as high as 35% in 2003 and later years (“ordinary income rates”) (but the amount of excess depreciation subject to recapture may be less for certain low-income housing). Gain, to the extent of the depreciation that isn't recaptured as ordinary income, will be taxed at a rate of 25% and the balance of the gain will be taxed at a rate of 15%.
Non-Residential Real Estate - As is the case for residential pre-1987 realty, if you depreciated nonresidential pre-1987 realty using just straight-line depreciation, the tax results if you sell it will be the same as for a sale of post-1986 property, as described above. But if, as was possible, you, at any time, used a declining balance method to depreciate the realty, the gain on sale would be taxed as follows: gain, to the extent of the full amount of depreciation allowable to the time of sale, would be recaptured as ordinary income, and, thus, taxed at ordinary income rates;
the balance of the gain would be taxed at a rate of 15%.
Exchange for Non-Depreciable Property - When depreciable section 1250 property is exchanged for non-depreciable real property, such as raw land, then excess depreciation and 1250 un-recaptured gain is recaptured and is taxable at the time of the exchange, even though no taxable boot is received in the exchange. This is a tax trap that few taxpayers are aware of.
Increased IRS scrutiny of partnership "drop & swaps" have had an effect on real estate. Do you know how and when to dissolve a partnership so partners can go their separate ways in a §1031 Exchange?
Some substantial recent rulings on "related party" exchanges have impacted real estate transactions between related parties. Do you know how to buy from or sell to a related party and avoid the pitfalls?
A recent revenue procedure allows IRC §121(primary residence capital gain exclusion) and IRC §1031 to be combined to maximize a seller's tax advantages.
Do you know how to combine these tax codes maximize your tax advantages?
In past newsletters, I have mentioned that the easiest way to minimize the tax impact when selling is to do a tax deferred exchange. If you have questions about tax deferred exchanges give us a call. If you are considering selling your property in Hawaii, a tax deferred exchange will exempt you from the 5% HARPTA withholding and also the Federal Capital Gains Tax. Planning in advance for the disposition or acquisition of assets is always a wise decision. Another invaluable tool for sellers in doing a tax deferred exchange is having the option of using tenant-in-common (TICs) for qualifying for replacement properties.
We have assisted sellers (for sale by owners) who had buyers but needed someone to facilitate the sale and guide them through the process and assure them they were asking a current market value price for their properties.
Many property owners who currently own underperforming assets can sell those assets and take advantage of tax deferred exchanges, turning an underperforming asset such as land into an income producing asset. If you are contemplating selling highly appreciated real estate during 2010 and would like for us to provide an analysis of how to best structure your transaction, please call me or send me an email if you would like additional information at 808-661-7994 or email Jim@JamesBFoster.com
Useful Internet Sites
http://tinyurl.com/restoremaker When installing new software or changing any of your comport system files you should create a restore point. This can cause problems and most people don’t bother. Now you can download this simple program and create a short cut. Then anytime you change your system you can just click the shortcut and a few seconds later your restore point has been created. Then if the new program or tweak creates problems with your system in Widows 7 or Vista, you simply restore it to its previous condition.
http://app.citrify.com/ We have all tried complicated and expensive photo editing programs only to give up on what could have been a fun editing project. This web site allows you to upload your photos quickly and easily edit them such as removing red eye, blemishes and even wrinkles. It easy and there is no manual required.
http://www.clicker.com/ Watch TV on your computer or capture shows you miss. This web site is the ultimate resource to get you watching whatever movie or series you want instantly. This site contains more than 600,000 episodes, from over 10,000 shows plus 20,000 movies, and 80,000 music videos from 20,000 artists. These folks help you stay on top of what programs are available online and offline, organizing them for you, and recommending gems that meet your fastidious taste.
http://www.pronouncenames.com/ If you have you mispronounced the name of a new acquaintance or valued business prospect then you can benefit from this web site. Easy to use and can save you many embarrassing moments.
http://video.pbs.org If you are a fan of the Public Broadcasting System (PBS) (or want to be) then this is a very worthwhile place to visit. Frontline -- Masterpiece Theater -Nova -- American Masters -- this great place has full length videos at your fingertips - on demand! You can watch your favorite shows and catch any episodes you may have missed -- all on your schedule. You can also send your favorites to friends and post them to social networks. There is no cost but if you are not a member of your local PBS affiliate you should become one as it is the highest quality of entertainment and a bargain price.
The Boys Are Back – This was a very enjoyable movie. DVD 2009 Following the sudden death of his wife, Australian sportswriter Joe Warr (Clive Owen) struggles to cope with his grief and comfort his young son (Nicholas McAnulty). Being a single father gets even trickier when Joe's rebellious teenage son from a previous marriage (George MacKay) moves in. Director Scott Hicks helms this touching -- and often hilarious -- tale of a family in flux, based on a memoir by Simon Carr. Cast: Clive Owen, Laura Fraser, George MacKay, Emma Booth, Erik Thomson, Natasha Little, Emma Lung, Nicholas McAnulty, Julia Blake, Chris Haywood
Kindest Regards, Jim Foster
Chase 'N Rainbows Real Estate, Inc.
Toll Free 888-661-7994
Direct Line 808-661-7994
Cell 808-870-5858
Fax 808-667-2957
Real Estate for Sale www.JamesBFoster.com
Vacation Rental www.ChaseNRainbows.com
Email Jim@JamesBFoster.com
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