How to make $30,000 in a Down Market!

When the real estate market slowed, many people turned to the stock market thinking it was a safer place to be. That is not proving true. In the Portland area, housing values have dropped 10% - 15% over the past couple of years. Lately, some 401K’s have lost 5% in one day!
So, the perfect storm has been brewing for months. For two years the real estate market has contracted. Home values have become much more affordable. Now, the credit industry is loosening, courtesy in part to our $700 billion rescue plan. It is the perfect setup to unleash pent-up demand.
History shows that most of the world's largest fortunes have been created when everyone else was filled with fear. In fact, the two greatest fortunes in American history were created during times almost exactly like these. It was just after the stock market panic of 1873.I t started with a housing bubble, similar in cause and effect to the current one. The turning point was the failure of Philadelphia blue-chip bank Jay Cooke, similar to our Bear Stearns sale for $2 a share. Once the bank fell, the credit market locked up and nobody was lending money. Companies failed by the thousands. The economy was horrible, yet some businesses flourished.Companies that positioned themselves strategically and exploited the opportunities reaped huge rewards. John D. Rockefeller, who founded Standard Oil (the parent of nearly all the major U.S. oil companies), was able to buy out his competition at fire-sale prices. Andrew Carnegie, who built U.S. Steel and became history's second-richest man behind Rockefeller, did the same thing. These men converted their companies into empires. The years following the Panic of 1873 became the Gilded Age of Industry. I love the way Warren Buffet puts it. He says, "Be fearful when other people are greedy...and greedy when others are fearful." Like he says, now is your time to BE GREEDY!
Which bring me to how to make your $30,000. Do you know that it is very wise to buy up to a more expensive home in a down market? Yes, you may loose 15% on the $200,000 house you are selling ($30,000), but you may well pick up the same 15% on the $400,000 house you are buying ($60,000). (I can write your offer today!)
You see, it really is a good market. Values may be set back a couple of years, but it is still better than it was in the late 90’s and early 2000. If you don't plan to flip a house, but live in it for 5 years or so, this is the time to do it. It is a time of opportunity!

Installment Sales and the 1031 Exchange

Submitted by,
David Moore
Equity Advantage, Incorporated
Today’s economic environment may require the use of a contract sale. A common misunderstanding of installment sales is their impact on a tax-deferred exchange. Since a note typically represents equity in a property and a 1031 Exchange requires all equity to be carried forward to be completely tax deferred, it is necessary to use the note in the exchange for complete tax deferral.
In order for a note to be used in an exchange, you, the Exchangor, must not have had actual or constructive receipt of the note. The note must be the Facilitator’s at settlement just as any cash must be.
The following are options available to you:

1. As the Exchangor, you can direct Equity Advantage to sell the note to a third party such as a bank, pension fund manager or a private investor. The proceeds from the sale of the note are then deposited with Equity Advantage. You will need to deposit additional cash to offset the amount that was discounted on the note for total tax deferral. If the additional cash is not deposited, you will have tax exposure on the difference between the note’s value and the discounted sale price of the note if any.
2. You, the Exchangor, use the note along with the cash to acquire the replacement property. The Seller of the replacement property now owns the note.
3. You, the Exchangor, purchase the note from Equity Advantage. The note has now been converted to cash and the exchange can be completed.
4. If the note is short term and matures inside the 180-day exchange period, it is possible to complete the exchange after the note is paid off.
5. Finally, if you are not concerned with deferring all of your taxes, you may choose a partial exchange, using only the cash proceeds in the exchange. The note will be considered “boot” and payments will receive installment sale treatment (Section 453). Depreciation recapture is due in the year the sale occurred.
Equity Advantage often receives requests to structure an exchange for a potential client that is about to receive a balloon payoff of a note they have been in receipt of. Unfortunately the taxpayor has had receipt of the note and therefore a future balloon payment will be fully taxable.
Understanding the motivation behind the sale and the use of the note often dictates the option chosen. A careful review of the options available and their tax consequences is critical, the taxpayor’s tax and legal counsel will be able to make the right decision given time and information.
David Moore
Equity Advantage, Incorporated
One Centerpointe Drive, Suite 300
Lake Oswego, Oregon 97035 Phone (503) 598-1031
(800) 735-1031 Fax (503) 619-0226 http://www.1031exchange.com
Tax Advice Notice: The above written material is general information and not tax advice. Please consult with your CPA and/or attorney for tax advice. Per IRS Circular 230 Disclosure, IRS regulations requires us to notify you that this communication was not intended or written to be used, by you as the taxpayer, for the purpose of avoiding penalties that the IRS might impose on you.

First Time Home Buyer Tax Credit

What is it?

It’s a $7,500 tax credit for qualified first time home buyers purchasing homes between
April 9, 2008 and July 1, 2009. If the home purchase price is less than $75,000, the
tax credit will equal 10% of the purchase price. The tax credit is refundable, so the
buyer will receive the full credit even if it exceeds his or her tax liability. For many
people, this will mean getting a sizeable check from the government. Buyers can
even elect to have their qualified 2009 purchase count as a 2008 purchase so they
can claim it on their 2008 tax return.

The credit must, however, be repaid. It is structured as a zero-interest 15-year loan,
where the payments are added to your federal tax liability on an annual basis and your
first payment is due 2 years after the credit is claimed. For example, if you claim the
tax credit on your 2008 tax return, your first payment of $500 will not be due until your
2010 tax return is filed. If you sell your home prior to complete repayment of the
credit, the remaining credit amount will be due from the profit on the home sale; if your
profit is insufficient, the remainder of the credit payback will be forgiven.

You are eligible if:
• you (and your spouse, if applicable) have not owned a principal residence
within the last 3 years;
• your modified adjusted gross income (MAGI) does not exceed $75,000 if
you file as an individual taxpayer or $150,000 if you file a joint return (partial
credits are available for MAGIs up to $95,000 and $170,000, respectively);
• you are a U.S. citizen or you are not a nonresident alien; and
• you purchase a home as a primary residence and the closing occurs on or
after April 9, 2008 and prior to July 1, 2009.

Exceptions:

*If you stop using your home as your primary residence (i.e. converted to a rental or vacation home), all remaining installments become due on the return when that happens.
*If you sell your home, all remaining installments become due on the return for the year of the sale. The repayment is limited to the gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain, or a loss, the repayment may be reduced or maybe even eliminated.
*If you transfer your home to your spouse, as a result of a divorce settlement or otherwise, that person is responsible for making all subsequent payments.
*If you die, all remaining installments are not due. If you filed a joint tax return and then you die, your surviving spouse would be required to repay his/her one-half of the remaining payment.

Jennifer Cunnington
Senior Loan Consultant
(503) 699-6439 Office
(503) 358-1687 Cell
www.equityhome.com/jenniferc

For tax advice, please consult your tax advisor.