1031 Exchanges and Vacation Homes actual text for IRS Rev. Proc. 2008-16

IRS Rev. Proc. 2008-16 on Safe Harbor for Like-Kind Exchange of Dwelling Unit

IRC Section 1031 IRC - Section 280A Document Date: February 15, 2008

This revenue procedure is scheduled to be published in Internal Revenue Bulletin 2008-10, dated March 10, 2008.

Part III

Administrative, Procedural, and Miscellaneous

26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability.

(Also Part 1, §§280A , 1031).

Rev. Proc. 2008-16

SECTION 1. PURPOSE
This revenue procedure provides a safe harbor under which the Internal Revenue Service (the "Service") will not challenge whether a dwelling unit qualifies as property held for productive use in a trade or business or for investment for purposes of § 1031 of the Internal Revenue Code.

SECTION 2. BACKGROUND
.01 Section 1031(a) provides that no gain or loss is recognized on the exchange of property held for productive use in a trade or business or for investment (relinquished property) if the property is exchanged solely for property of like kind that is to be held either for productive use in a trade or business or for investment (replacement property). Under § 1.1031(a)-(1)(a)(1) of the Income Tax Regulations, property held for productive use in a trade or business may be exchanged for property held for investment, and property held for investment may be exchanged for property held for productive use in a trade or business.

.02 Rev. Rul. 59-229, 1959-2 C.B. 180, concludes that gain or loss from an exchange of personal residences may not be deferred under § 1031 because the residences are not property held for productive use in a trade or business or for investment.

.03 Section 2.05 of Rev. Proc. 2005-14, 2005-1 C.B. 528, states that § 1031 does not apply to property that is used solely as a personal residence.

.04 In Moore v. Commissioner, T.C. Memo. 2007-134, the taxpayers exchanged one lakeside vacation home for another. Neither home was ever rented. Both were used by the taxpayers only for personal purposes. The taxpayers claimed that the exchange of the homes was a like-kind exchange under § 1031 because the properties were expected to appreciate in value and thus were held for investment. The Tax Court held, however, that the properties were held for personal use and that the "mere hope or expectation that property may be sold at a gain cannot establish an investment intent if the taxpayer uses the property as a residence."

.05 In Starker v. United States, 602 F.2d 1341, 1350 (9th Cir. 1979), the Ninth Circuit held that a personal residence of a taxpayer was not eligible for exchange under § 1031, explaining that "[it] has long been the rule that use of property solely as a personal residence is antithetical to its being held for investment."

.06 The Service recognizes that many taxpayers hold dwelling units primarily for the production of current rental income, but also use the properties occasionally for personal purposes. In the interest of sound tax administration, this revenue procedure provides taxpayers with a safe harbor under which a dwelling unit will qualify as property held for productive use in a trade or business or for investment under § 1031 even though a taxpayer occasionally uses the dwelling unit for personal purposes.

SECTION 3. SCOPE
.01 In general. This revenue procedure applies to a dwelling unit, as defined in section 3.02 of this revenue procedure, that meets the qualifying use standards in section 4.02 of this revenue procedure.

.02 Dwelling unit. For purposes of this revenue procedure, a dwelling unit is real property improved with a house, apartment, condominium, or similar improvement that provides basic living accommodations including sleeping space, bathroom and cooking facilities.

SECTION 4. APPLICATION
.01 In general. The Service will not challenge whether a dwelling unit as defined in section 3.02 of this revenue procedure qualifies under § 1031 as property held for productive use in a trade or business or for investment if the qualifying use standards in section 4.02 of this revenue procedure are met for the dwelling unit.

.02 Qualifying use standards.

(1) Relinquished property. A dwelling unit that a taxpayer intends to be relinquished property in a §1031 exchange qualifies as property held for productive use in a trade or business or for investment if:
(a) The dwelling unit is owned by the taxpayer for at least 24 months immediately before the exchange (the "qualifying use period"); and

(b) Within the qualifying use period, in each of the two 12-month periods immediately preceding the exchange,

(i) The taxpayer rents the dwelling unit to another person or persons at a fair rental for 14 days or more, and

(ii) The period of the taxpayer's personal use of the dwelling unit does not exceed the greater of 14 days or 10 percent of the number of days during the 12-month period that the dwelling unit is rented at a fair rental.

For this purpose, the first 12-month period immediately preceding the exchange ends on the day before the exchange takes place (and begins 12 months prior to that day) and the second 12-month period ends on the day before the first 12-month period begins (and begins 12 months prior to that day).

(2) Replacement property. A dwelling unit that a taxpayer intends to be replacement property in a §1031 exchange qualifies as property held for productive use in a trade or business or for investment if:

(a) The dwelling unit is owned by the taxpayer for at least 24 months immediately after the exchange (the "qualifying use period"); and

(b) Within the qualifying use period, in each of the two 12-month periods immediately after the exchange,

(i) The taxpayer rents the dwelling unit to another person or persons at a fair rental for 14 days or more, and

(ii) The period of the taxpayer's personal use of the dwelling unit does not exceed the greater of 14 days or 10 percent of the number of days during the 12-month period that the dwelling unit is rented at a fair rental.

For this purpose, the first 12-month period immediately after the exchange begins on the day after the exchange takes place and the second 12-month period begins on the day after the first 12-month period ends.

.03 Personal use. For purposes of this revenue procedure, personal use of a dwelling unit occurs on any day on which a taxpayer is deemed to have used the dwelling unit for personal purposes under § 280A(d)(2) (taking into account § 280A(d)(3) but not § 280A(d)(4)).

.04 Fair rental. For purposes of this revenue procedure, whether a dwelling unit is rented at a fair rental is determined based on all of the facts and circumstances that exist when the rental agreement is entered into. All rights and obligations of the parties to the rental agreement are taken into account.

.05 Special rule for replacement property. If a taxpayer files a federal income tax return and reports a transaction as an exchange under § 1031, based on the expectation that a dwelling unit will meet the qualifying use standards in section 4.02(2) of this revenue procedure for replacement property, and subsequently determines that the dwelling unit does not meet the qualifying use standards, the taxpayer, if necessary, should file an amended return and not report the transaction as an exchange under § 1031.

.06 Limited application of safe harbor. The safe harbor provided in this revenue procedure applies only to the determination of whether a dwelling unit qualifies as property held for productive use in a trade or business or for investment under § 1031. A taxpayer utilizing the safe harbor in this revenue procedure also must satisfy all other requirements for a like-kind exchange under § 1031 and the regulations thereunder.

SECTION 5 . EFFECTIVE DATE
This revenue procedure is effective for exchanges of dwelling units occurring on or after March 10, 2008. No inference is intended with respect to the federal income tax treatment of exchanges of dwelling units occurring prior to the effective date of this revenue procedure.

SECTION 6 . DRAFTING INFORMATION
The principal author of this revenue procedure is J. Peter Baumgarten of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this revenue procedure contact Mr. Baumgarten at (202) 622-4920 (not a toll free call).

Martha’s Vineyard Real Estate – Should You Be In The Market Now?

There are too many people who should not be in the real estate market right now, both buyers and sellers. They’re not serious, they are time wasters, and to me real estate is not a game.

If I were a seller’s agent, and I am not, and a home owner came to me asking me to list his property at a certain price that was out of line with my market research, and saying “let’s just try it for a while at this price”, I would say no thank you. Perhaps that seller is unable to sell his property at fair market value because he owes too much, and is upside down --- loan vs. current market. Perhaps that seller does not have to sell, but is just testing the waters or derives some pleasure at seeing his property advertised at a big number. It is sellers like this and the resulting skewed values and distorted inventory that create the negative public opinion and add to buyer’s misperceived impression of the market.

If a buyer came to me, and they do, saying they want to “steal a property”, I say no thank you. Pricing property is analogous to water seeking its own level. If you price a property too high, it will languish on the market until the price comes in line with the market. Across the country, 36% of all properties sold for list price or higher. Only 12% of all properties nationally sold for 90% or less than asking price. What this means is buyers continue to wait until properties are priced correctly. If you recognize that a property is priced correctly, you need to bid accordingly because properties that are priced correctly will normally sell quickly to a savvy buyer, and there may be more than one savvy buyer making a run on a property at the same time. Buyers must realize right now prices are good, interest rates are excellent and anyone with cash or excellent credit has power if they use it wisely in their negotiation. I’ve seen this too many times. Buyers who are eager and ready to get into the market, but continue to sit on the sidelines waiting for the ‘go signal’ from on high that prices have bottomed out are destined to join the ‘would have … should have’ club. You know who I am talking about, those people who painfully recount that they could have bought that property for ….

In the investment game, if you think you are at the bottom, or at the top, it is too late --- you are already on the other side. Right now is a great time to approach the market because the fruit on the tree is abundant and ripe. I don’t blame anyone for having doubts and fears; after all, the news these days is mostly negative and full of fear. I love what Louis Rukeyser once said about investing, no matter what you do, it is going to be wrong so do something, because the worst thing is to do nothing.

We need to remember real estate is cyclical and this too shall pass. Historically, the down-markets normally last two to three years and the up-markets last from seven to ten years. I believe we are walking in the valley right now, but we just don’t know it. It is going to be a long slow trek through the valley and we may not reach the mountain until the end of 2008, or the beginning of 2009, but we are on the march. One thing is for sure, real estate values overall continue to go up. Real estate is the one sure investment that always appreciates over time.

New Regulations Impose the Nation's Toughest Restrictions on the Mortgage Industry

In an effort to encourage mortgage lenders in Massachusetts to continue doing business here, on January 2, 2008 the Attorney General’s office imposed restrictions that require increased income documentation and a “reasonable belief” that a borrower can afford the loan they are applying for.
Follow this link to learn more > New Mortgage Rules in Massachusetts

Narragansett Bay Insurance undercuts Fair Plan

In the past few years virtually all residents of Cape Cod and the Islands have been caught in the mass exodus of insurance companies from the region. Policies have been abruptly cancelled with the only option being the government Fair Plan insurance with its higher rates and deductibles. Now a company in Rhode Island is attempting to offer insurance plans that will be more affordable than Fair Plan insurance.
Follow this link to read more > Narragansett Bay Insurance

Catastrophe Fund Backed To Insure Coastal Homes While Deductibles Skyrocket

As a homeowner on Martha's Vineyard Island, living on the water, I can tell you I have felt the bite of insurance companies backing away from so-called high risk locations. Before I was forced into the Massachusetts Fair Plan, a representative from my home owners insurance provider came to my house and subsequently I received a terse letter saying if I did not remove and cut back all the trees that were close to me house, the insurance provider, Vesta would cancel my insurance. I was bewildered and called my local insurance agent. I was surprised when my agent told me to ignore it because --- Vesta was going to cancel me anyway. They filed for protection with the US Bankrupcy Court, and became another casualty of the disastrous hurricane season in 2005.

According to an editorial in the Boston Globe reported by Bruce Mohl, "A special legislative commission called for the creation of a state-run catastrophic event fund to help reduce the cost of home insurance in Massachusetts. Few details were provided in the report, but the fund would be set up to sell reinsurance to companies at below-market rates. Industry officials participating on the commission dissented from the majority view, saying the fund would drive up insurer costs. Consumer groups also dissented, saying they wanted caps on the increases being sought by the Massachusetts Fair Plan, the home insurer of last resort. Insurers have been canceling policies or raising premiums along the coast on fears of a major hurricane. The Fair Plan provides coverage for about 40 percent of homes on the Cape and islands."

In the meantime, as of December 15, 2007 many residents of Martha's Vineyard insured under the Massachusetts Fair Plan will have the highest windstorm and hail deductibles in the country, up from a minimum of two to five percent. The increase will affect homes valued up to $500,000.
Follow this link to read > Bills Grow Larger For Home Insurance

What is it going to take to get the Martha’s Vineyard real estate market rolling again?

There is one thing for sure, wishful thinking is not working. Neither is the constant stream of anemic price reductions week after week. How about those incentives and broker bonuses? You know what I'm talking about; the three-year old Range Rover in the driveway, the 24' sailboat, a 60" LCD TV, seller paid closing costs, seller paid Land Bank fee, first payment in six months, a vacation in the Bahamas or $50,000 to the agent that brings the buyer. None of that is working, and any additional compensation offered to an agent that brings the buyer should be considered a conflict of interest and bribery.

So what is working, and how is it working? Home "Staging" is working to some degree, but once buyers wise up to the fact that this kind of eye candy emotional sizzle is costing them thousands of dollars more in the price for the home, they will stop falling for it and start backing away from homes that look just too pretty. They will wonder what lies beneath the dining room table that is set for a 5-course formal dinner party seating twelve.

In an article written for Bloomberg News, John F. Wasik says, "Buyers just want price," he quotes one real-estate attorney/broker/consultant based in Stuart, Fla., as saying. "Buyers have become more educated and they can easily cut through the fluffy incentives". Hmmm. I don't think we're there yet. Everyone loves romance and people shopping for a home on Martha's Vineyard want to fall in love. This market is like going to Las Vegas for the first time and getting lost in one of the Casinos. Know the feeling?

What is the first question buyers ask? "How long has the house been on the market?" This has almost become a joke among real estate professionals, but buyers ask the question because it is commonly assumed that the longer a property has been on the market the weaker the seller's resolve to hold firm on price. You see, overpriced listings that languish on the market reduce the seller's negotiating ability as time diminishes their power. Once a listing has gone unsold, even if they take it off the market for a while or remove it and relist it with another agency, the information is in the public domain. There are definitely exceptions; EG: the seller doesn't have to sell, or the seller just likes to see their property advertized at some inflated price.

I think it is obvious that if a seller is serious --- I am NOT talking about desperate; homes priced to sell will sell. That means being ahead of the market instead of chasing the market. A good deal starts to get noticed if it is at least 10% below its competition. But when you see a good deal, do you think you are the only one who sees that good deal? Heck no, and usually you end up competing with other consumers who want what you want. What that can do is create a bidding war, and that is exactly what the seller wants --- or should want. A bidding war is probably the best and truest way to establish market value. I hate bidding wars, and right now I don't have to worry about it because sellers on Martha's Vineyard are following the same bloodletting technique; they all price high and week after week pull a few thousand dollars out of their last price. My clients feel like they are standing around the markdown sale table at Macy's waiting for the 70% off sign to go up.

There is a lot of misleading statistical information out there right now. Many agents talk about price-to-price ratio. In the recent 2007 NAR Report on Buyers and Sellers it states that "sellers sold their homes for 97% of list price." Does this mean 97% of the original listing price or 97% of the current listing price? The property could have been on the market for a year and transitioned through a half-dozen price reductions before it finally sold.

To sellers my advice is to listen to your listing broker when they give you an 'honest' price recommendation. In this market, if you interview several brokers, hire the broker who gives you the lowest price recommendation because they are probably the one telling you the truth. Many times a broker will agree to a listing contract with a seller because they are thinking, "If I don't take it, my competitor will and I will lose it." They know full well the property will never sell at the listing price. They are banking on the seller eventually coming to their senses and seeing the light. The conversation goes like this. "Mr. Seller, it has been three weeks since we listed your property and we have had no interest, so it is time to reduce the price." By then it is too late and that conversation will most certainly be had again --- and again.

To my buyer clients I always say if you like a property, pay little attention to the asking price and don't be afraid to make a "Bold Offer". By this I mean make an intelligent well thought-out and thoroughly researched offer. I make it perfectly clear on my website > ATTENTION SELLERS: A Low Offer Today, May be a High Offer in 60 Days .

Federal Funds Rate Down Again

Today the Federal Reserve once again in less than two months lowered its target rate for the federal funds rate by a modest 25-basis-points to 4.5 percent and the discount rate to 5 percent.

In a statement announcing the Fed’s decision today, members of the Federal Reserve's Open Market Committee said that "after this action, the upside risks to inflation roughly balance the downside risks to growth."

Some analysts concerned that the housing downturn will lead to a recession were hoping for another 50-basis-point reduction in the federal funds rate, but the Fed has to weigh consequences such as further weakening of the dollar and inflation.

However, on Martha’s Vineyard, the mortgage market has little effect on our high-end market, because most real estate transactions are all cash.

GREENSPAN SPEAK(S)

If you watched the most recent interviews with Alan Greenspan you may or may not be pleased with what you heard. As for the housing bubble, Greenspan says it is a global problem and we still have some distance to travel before the market levels off. He said, “We, unlike the rest of the world, are showing some modest price declines.” When asked if a recession was on the horizon, his answer was, “The evidence so far, is not yet. The economy at this stage, despite this fiscal problem, despite the financial problem, is still holding up.”

In hopes of slowing the downturn in the housing market and lessening the credit crunch the Fed is expected to lower federal funds rates to at least 5.0 percent; it is now at 5.25%. However, Greenspan still sees a great deal of pain ahead for those who overextended during the boom. “I think we're going to have to go through this adjustment, as indeed all the other countries are in the process of going through it. There are going to be a lot of people who will have very tragic stories," said Greenspan.

It appears Greenspan is less optimistic about the economy than he was while writing his memoir, The Age of Turbulence, and estimates the probability of a recession at just above one-third. One of the problems, according to an interview published in the WSJ is the “very large” inventory of newly built and unsold homes resulting in increased pressure on builders to sell them quickly.

Martha's Vineyard for the most part is a high-end resort and second-home market where many expensive properties are sold without need for mortgage financing. However, in order to stave off inflation in the future, Greenspan said the Fed would most likely have to raise interest rates to double-digit levels for the first time since the 80’s, but that increase period would be short lived. If you are contemplating a real estate investment on Martha’s Vineyard and need financing, I think that prediction alone is a good reason to get into the market while the rates are low.

Is The Real Estate Market on Martha’s Vineyard Finally A "Buyer's Market"?

In my opinion we are finally entering into an honest to goodness buyer’s market on Martha’s Vineyard. However, due to the fragile and mercurial climate in the loan market, this will be a buyer’s market with few buyers capable of performing.

The national fallout began last year in the sub-prime or what is called the predatory lending market. Dozens of lenders closed their doors, but now national lenders are also feeling the effects.

First Magnus Financial Corp. of Tucson, one of New England's biggest loan brokers, said it would stop lending altogether. Then American Home Mortgage Investment Corp., a publicly traded real estate investment trust that grew rapidly during the housing boom to become the nation's 10th-biggest residential mortgage lender just filed for Chapter 11 bankruptcy protection. AHM employed about 7500 employees in more than 550 offices in 47 states and the District of Columbia.

The list will continue to grow as companies like First Magnus Financial, American Home Mortgage and National City Home Equity announce they are no longer funding loans. National City Home Equity, like AHM, specializes in so-called Alt-A lending, typically to borrowers with strong credit who, for one of a variety of reasons, may not meet all the requirements for a prime, conforming loan. As the ripple effect of this collapse continues to spread, another large Alt-A lender, Houston-based Aegis Mortgage Corp. has filed for Chapter 11 bankruptcy protection. Aegis also laid off half of its 1,305 employee work force.

The nation’s largest independent mortgage lender with over 60,000 employees, Countrywide Financial Corp. is ‘lying on its side’ as one financial reporter described it. While companies like CFC manipulate billions of dollars in unsecured credit options to stay afloat, those companies still funding loans must devise ways to protect their loan investments.

Facing dwindling funds from jittery mortgage investors, the result is a more stringent qualification criteria required from would-be borrowers. Lenders are tightening requirements, increasing interest rates, demanding larger down payments, and completely withdrawing some mortgage products. However, New England based lenders like Sovereign Bank and Cape Cod Five Cents Savings Bank say they are still having no problem funding loans. Sovereign has instituted a program they call "lock and look" that comes with a full pre-approval and allows the client to lock in a rate while they look for their future home, for either 90 or 120 days.

Borrowers are being told to make at least a 5% down payment, put enough money down to avoid taking out a higher-rate jumbo mortgage, and be prepared to verify your income through tax or other documents. Borrowers may also be required to have assets on reserve equal to six or more monthly payments. Even borrowers with strong credit and fico scores well above 700 can not be certain their loans will be funded.

The following comes from a major U.S. mortgage writer. It is typical of what has been going on in the mortgage business:

“As you are probably aware, the mortgage industry is going through a major disruption. In response to these market conditions and to enable ******* to continue to serve our customers; we have made changes to our loan eligibility, appraisal rates and repricing of loans in the pipeline.
- Rate exceptions by AE's will no longer be allowed
- Only full doc loans allowed
- No Non OO (Owner Occupied) and second homes allowed
- Increased disposable income requirements on D/R's > 50% from $2000 to $3000
- No refinances of Vacant Properties
- No refinances of properties listed for sale in the last 3 months
- Limited ltv's on homes listed for sale > than 3 mos but less than 6mos for cash out refi's
- Loans in the pipeline will be repriced according to the current rate sheet unless they are in '"docs out" status or are Purchase transaction types in "Conditional Approval"
- All loans in the pipeline that are NOT O/O Full Doc must fund by August 17
- Appraisals must be less than 90 days old
- Appraisals must contain 1 comp sale <>

Okay, so now you want to know, what is the point? What does this have to do with Martha’s Vineyard? I know Martha’s Vineyard is a special place, with a different home buyer profile than hometown USA, but I can tell you the market here is no cake walk. Here is an article that just appeared in our flagship newspaper, the Martha’s Vineyard Gazette. Read it and --- Believe it or Not!

Click here to read article >Island Real Estate Sales See Second Quarter Gain With Few Mortgage Ills

I'm A Real Estate Buyer's Agent, And I Love What I Do.

I do not post editorials to my Blog unless I am the author, or collaborating with a colleague. However, this account of a personal real estate interaction written by a gentleman I know is so hilarious and poignant, I cannot resist sharing it.

Steve and his wife, having returned from a Sunday tour of open houses, were reflecting back on the events of the day and here is his impression of the experience.

A Buyer's Plea for Some Respect

By Steve Burnett © 2007
Reprinted by permission

Just because I don't happen to have my agent with me on this visit, doesn't mean I don't have one. Without an agent with me, we both know that your first question is likely to be, "are you working with somebody?" This really means you're trying to find out if there's any chance you can function as a dual agent and double your percentage. Or, maybe that same question is your way of determining if I'm really a serious buyer or just one of the neighbors from down the block. See those MLS sheets and Google maps in my hand? I'm not a neighbor from down the block. I'm looking to buy something. You'll see that in my eyes once you stop worrying about "establishing a dialog" or "getting to know your buyer" or when you stop asking yourself, "How can I tuck in an extra 2.5 points on this deal?"

Aside from pointing out something notable or unusual, I really don't need you to announce, "...and this is the hall bathroom..." as we tour the house. I know what bathrooms and bedrooms and kitchens look like already, thank you. Perhaps you're used to dealing in twenty-room mansions where the function or location of each room might have to be explained, but I'm just a regular guy looking for your average 3/2 suburban rancher. It's not likely I'm going to get lost or confused about what a particular room is, so save your chatter until you have something really informative to tell me.

In fact, hold your chatter, period. Unbeknownst to you, my wife and I have just flipped a coin in the car outside to determine which one of us has to take the chore of talking to you and answering all your questions so the other one of us actually gets to look at the place in a somewhat uninterrupted manner.

If you think you're going to entice me into making an offer by claiming that you have other offers coming in soon, or telling me how many other folks have seen your open house today, expect me to turn on my heel and exit your open house. Attempting to create the appearance of scarcity is so 2004. There's no point in me getting into a bidding war, real or imagined. If you don't believe that, please revisit the months-of-supply and DOM numbers for your area. Hint: I've seen those numbers!

I know what new paint looks like, and I know what old paint looks like. It's not super important for you to point out the difference, since $50 bucks at Home Depot, a few beers, and a few hours on a Saturday are all that are required for me to solve any paint issues in a room. I'd rather you let me decide what the value of such "upgrades" are. Hint: You are not going to get a few extra grand in value just because the seller took $50 bucks, a few beers, and an afternoon to slap some trendy color on the walls. Same story applies with crown molding and wainscoting. Forget what you and your sellers have seen on HGTV; you are not going to get a 10X return-on-investment for a few hundred bucks worth of DIY projects. If the basic value of the house in not there due to the number of rooms, location, or dollars per square foot, no amount of superficial "upgrades" are going to change that basic value. Conversely, if the basic value is there, I'm very prone to overlooking lime green walls, chipped tile, and a myriad of cosmetic issues.

The whole staging thing is getting really old. Does the house you live in have strategically placed bottle of wine with a pair of glasses on the patio table every night of the week? My current house doesn't, I can assure you that the only time there's a big bowl of fresh-cut flowers on the kitchen table is on Valentine's Day, or when I've made my wife mad. Normal people live in homes where the coffee table has a bunch of remotes, chewed-up dog toys and six-month old magazines. A staged house always seems to have a book of Tuscan sunsets, a bowl of teal-colored marbles, and nothing else on that coffee table. Sure, ask the sellers to tidy up a bit. But don't stage the place to the point where it's a cliché, or to a point where it's not even plausible that actual people might live in the house. Really, I'm trying to look through all the fruit bowls, cute soap bars, and other doo-dads you've carefully placed. It insults my intelligence that you think crap like that might make me want a particular property more than what I would have without the staging. In spite of what you have heard, a vacant house with no furnishings whatsoever is fine.

You know all those apple pie-scented candles in your trunk you've been packing around for each open house you do? Dump them. Put them in your own garage for the next power outage. Give them to some homeless. Do anything but use them to give potential open houses that "home" feeling. Virtually every single one of your competitors is already trying the same idea. Unless your property has dead animals underneath the floor boards, or had the living room used as an indoor kennel, there's really no scent that you can add that is going to want to make me want to buy something I wouldn't otherwise. Back to the intelligence thing: Do you honestly believe that people make large, 30-year financial commitments because they caught a whiff of punkin' pie? Don't even get me started on chocolate chip cookies or popcorn. Yes, I've read the studies about how the rational mind can be strongly influenced by scents. When you try that play, all I really smell is your desperation.

Basic literacy: FYI, the windows that you're trying to tell me about are spelled: "dual pane", not "duel pain" or duel pane". I only bring this up because I've really seen these spelling variants in many listings. Same issue with !!! $ALL CAPS DESCRIPTION$ !!!! and TXT THT LKS LK A 14YO GRL might be sending me a text message. I expect to see that kind of writing for Beanie Babies on eBay, not on a $500,000 home listing. Again, it's a mistake for you to think I might be dumb enough to give your listing any more than the usual amount of attention due to the number of exclamation points. Fact is, I'm less likely to look at such a listing because your writing skills look like you dropped out of high school and I'm not likely to trust you with such an important purchase.

It's not 2005 anymore, and buyers like me are getting back to pure fundamentals: Dollars per square foot, and location. Stuff you can't change with new paint or by "spicing up" your listing description. Remember, I'm looking at buying in a down market and maybe having to sit through a few years of little or no appreciation. You can help me by explaining how the fundamentals of your property might work for me. You can save us both some grief if you can help your seller to understand that it's not 2005 and that the next buyer is not likely going to enjoy a 20% per year price appreciation and the price should be set accordingly. Sorry, it's a new market now.

I've Seen It All On Martha's Vineyard

For as long as I can remember it has been a mystery to me how some home owners here on Martha's Vineyard decide to sell their family home, hire a seller's agent, agree to pay a fee and put their home on the market but never take the time to clean and fix up their home and property, not even just a little.

One would think a seller would at least fix that broken staircase to the second floor bedrooms so a prospective buyer would not have to use an outside staircase to get to the second floor living area. One would think the two Rottweilers running loose in the house would be sequestered outside when the seller's agent shows the property.

A prospective buyer coming into a house and contemplating living there needs to see through the distracting maze of stuff the home owner has accumulated over the last 30 years; they need to see themselves living in that home. They will see nothing if they are trying to dodge the growling dogs, making sure their child doesn't fall through a broken staircase, or navigate around dirty laundry strewn across the living room floor.

Staging and Feng Shui is all the buzz now, but for the most part we still ignore it on Martha's Vineyard. I guess you might say the pervasive attitude is “We’re Martha's Vineyard and we’re hot so deal with it!”

I belong to the National Association of Exclusive Buyer Agents (NAEBA) and below is an article being circulated throughout the media in this country. You may get a chuckle out of it, but more importantly, if you are a seller, pay attention and give your agent and my buyer clients a break. Remember, sellers want to sell, buyers want to buy and real estate agents want to make it happen.

Buyer Beware: Skeletons in the Closet
(and Aliens in the Basement)
ARLINGTON, Va., June 22 /PRNewswire-USNewswire/ -- How much do you suppose a pile of crunchy dead bugs on the basement floor will affect the selling price of a $500,000 home? How about a life-size skeleton hanging in the closet, or an open coffin in the basement with a dummy vampire inside? Or an overly-ripe kitty litter box under the kitchen table?

The National Association of Exclusive Buyer Agents (NAEBA) recently conducted an online survey of their members to rate the items they found most annoying when searching for a new home with buyers. Since these real estate companies are always looking out for the buyer's best interest they don't pull any punches. The results of the survey are revealing, surprising, and sometimes downright weird.

Here are the top five things exclusive buyer's agents find most annoying when previewing a home:

1. Broken door locks preventing access to the house.

2. Pet deposits in the back yard or dirty cat boxes.

3. Missing light bulbs in the basement.

4. Sellers that ask you to remove shoes and then have wet carpet or dirty
floors.

5. Having loose stairs on a stairway or missing banisters.

Other reported annoyances include:

6. Low hanging dining room light fixtures in a vacant home.

7. Closet doors that fall off or are not adjusted properly.

8. Going into a vacant home and hearing animals in the walls.

9. Halloween decorations that are left out.

10. Dangerous children's toys left out.

11. Dead cars in the driveway or yard.

12. Homes on large lots without a survey or description of the lot
boundaries.

13. Political signs.

14. Graffiti on a home for sale.

15. Dead birds or animals in or around the home.

It seems that many home sellers are not overly-endowed with common sense. Closet doors falling off? Dead animals in the front yard? The pitter-patter of mousy feet in the walls? Scary Halloween decorations all over the house? These should all be no-brainers. Sending buyers away disgusted or frightened out of their wits is probably not the best of business decisions. Neither is killing or maiming them with dangerous children's toys left as booby traps.

Jon Boyd, President of NAEBA, relates some of the unbelievable things he's encountered over the years when going through homes for sale. "Once I was previewing a fairly expensive home by myself. I go into the huge basement and I can't find the light switch. As I'm reaching around a corner I catch a light switch and turn it on. About 8 feet in front of me is a life-sized model of the ALIEN MONSTER LOOKING RIGHT AT ME! My heart starts beating again in a few minutes when I figure out what the stupid thing is, but whose idea was it to leave the thing there while the home is on the market?"

At another house Boyd almost became an unwitting participant in a Chaplinesque silent comedy. "I'm stepping into the basement the first time with buyers right behind me, again without good lighting. My foot hits something and when the light goes on I see I just barely missed stepping off the step onto a roller skate. I'm serious. Can you picture me flipping over onto my back like a cartoon character? If my foot had come down 2 inches to the left..."

Silliness aside, there is an important lesson here for home sellers. "In all these cases the buyer's attention is diverted from evaluating the home to something mildly disgusting or frustrating," says Boyd. "If sellers have a dead pigeon lying on the deck it will just help our buyers negotiate a better price because of less competition. But let's try to leave the skeletons and coffins for the Halloween party!"

The National Association of Exclusive Buyer Agents was founded in 1995 to help consumers become educated homebuyers. NAEBA is a nonprofit organization whose purpose is to be the "champions of real estate buyers' rights and representation." It has over 500 members nationwide. Starting in the mid- 1990s, savvy buyers wanted the benefits of a real estate representative working for their interests exclusively. They turned to EBAs, Exclusive Buyer Agents, to do the job. NAEBA is an industry group dedicated to supporting EBAs in serving clients to the best of their ability. NAEBA offers industry standard certifications, ongoing education, client referral service, technology and information sharing. The NAEBA Code of Ethics pledges undivided loyalty to real estate buyers only. More information about NAEBA can be found at http://www.naeba.org.

Web site: http://www.naeba.org/

I Love Martha's Vineyard

I have lived on Martha’s Vineyard part time and full time for over 40 years, and I have seen a lot of changes --- some good and some bad. For the most part the Vineyard has still maintained its New England charm and tenor.

When I was a little boy my family summered in the Hampton's on Long Island. It was a magical part of my boyhood, but when I went back a number of years ago everything had changed.

I love these two lines from an article that appeared in The Record this past Sunday:

“Overrun? Maybe. Devine? Definitely!”

And then there was this quote:

"Southampton, eat your heart out!"

Follow this link to read about Martha’s Vineyard --- A Great Hideaway from the Rat Race

Is Your Property Eligible for a §1031 Tax Deferred Exchange?

Since Martha’s Vineyard is a vacation community, many properties are purchased for investment purposes and not as primary residences. Therefore the Section 1031 Tax Deferred Exchange option (also called Starker exchange) is especially intriguing and ideal for many investors.

Many media articles, dozens of websites and some real estate agents are quick to pontificate offering themselves up as §1031experts, but not giving a clear or complete picture of the §1031 exchange process. It seems many taxpayers believe they can exchange a vacation home at any time and that’s just not the case” says Tom Oldfield, attorney and partner in Olympic Exchange Accommodators based in Washington state.

I believe the process is too dicey and very complicated. It is constantly changing and has many sensitive factors and critical pitfalls that can make or break a deal. As a real estate broker and exclusive buyer agent, my duty is as a facilitator to my principal; I am not an accountant or tax advisor, attorney or qualified intermediary (QI). I have relationships with several good QI’s and will refer and assist anyone interested in pursuing a §1031 exchange. According to David Greenberger, an attorney and California licensed QI, here are some questions a taxpayer should be asked when contemplating the purchase of an investment property:
· Are you considering selling or buying any property for investment or business purposes?
· Are you considering putting any of your equity from one property into another?
· Are you considering selling any property and buying any other property within 6 months of each other?
· Can I put you in touch with an accommodator who can give you basic information and guide you through your particular facts and situation?
· Do you need further advice or information from a tax advisor?
· Have you got a clear plan for your real estate?
· Should you be considering new categories of real estate or regions for your replacement properties?
· Should you start looking for replacement properties now so that you give yourself more time than the prescribed 6 months from close of the relinquished property?
· Are you aware your deposit for the replacement property may come from the exchange account you set up once you have sold your first property in the exchange?
· Should I follow up with you once you have closed on your replacement property to track performance and help you decide whether you might want to enter into another exchange on additional properties you may own or to discuss a reverse exchange when new properties become available?

Should Second-homes be subjected to a Lodging Tax?

On February 15th I commented on a proposed Lodging Tax that would affect second-home rentals on Martha's Vineyard and Cape Cod. People who depend upon the rental income of their second homes to partially offset their carrying costs, would have to pass along the tax to their tenants in order to make their numbers work. The rental rates on Martha's Vineyard are already high. We have to ask ourselves, at what point will vacationers start to look elsewhere for better values? For people dreaming of owning a home on Martha's Vineyard and relying upon rental income as part of the purchase equation this tax would deliver a real blow to the process. Here is an update on the debate taken from an editorial at CapeBusiness.net:

"Should second-home rentals be taxed? Some things to consider as the debate intensifies over whether to tax summer rentals:

"Yes, it would level the playing field. Latest numbers show a waning occupancy rate for hotels and motels in the summer, surely a result of competition from summer home rentals.

"But what happens if second-home owners dependent on that income find themselves faced with as much as a 9 percent tax increase? For them, it is seeing their property tax almost double. This on top of rising energy costs, insurance coverage increases and a harder time renting their homes due to an oversupply of rentals. At what point will second-home owners decide to put their home on the market because the economics don’t work – especially since they no longer can expect double-digit price appreciation?

"And if those houses go on the market, what impact will that have on all house prices, including those owned by primary-home owners?

"Will municipalities worried about waning occupancy taxes find that scenario better?

"Now add the fact that second-home owners spend more on average than full-time residents – according to some studies, 1.6 times more. If they bail out in the face of rising overhead costs, what other businesses on the Cape – from furniture stores to restaurants – will suffer?

"The reality is that the tax issue transcends tourism and municipal budgets. It is very much a complex macroeconomic issue with many moving parts. Look at it one-dimensionally and we are sure to suffer unintended consequences."

Edgartown Adopts Strict BOH Regulations in hopes of Protecting Sengekontacket Pond

On March 7th, I commented on this article.
Click here to follow link > Septic Ban Points to Pond Protection

I spoke with Matt Poole the day before the Board of Health meeting regarding certain concerns I had about the proposed new health regulations governing Ocean Heights and Arbutus Park. Matt was actually working on completing the draft for the new regulation when I interrupted him. I told him I felt this could present a real hardship to current property owners who may not be able to afford the cost of possible mandatory waste water upgrades as outlined by the new regulation. Those with vacant lots may no longer be able to afford construction costs on their lots with the added expense of new utility systems. Matt said, in so many words, anyone who owns or purchases property in these areas should be able to afford the hookups. He may be right because there have been some pretty impressive houses going up in these communities lately.

Ultimately, this will be a good thing but I think it will be very interesting to see how the new regulations create a paradigm shift in Ocean Heights and Arbutus Park. I agree installing enhanced systems with the thought of evading the new hookup and as a permanent solution would be ill-advised because I believe the enhanced systems will have to be abandoned eventually. In my opinion enhanced systems are not attractive looking and I think they’re a band-aid for what has been and is increasingly becoming more and more a very serious problem -- the pollution of Sengekontacket Pond.

I think it’s unfortunate that Edgartown does not focus more on existing problems in developed neighborhoods before it allows major new construction projects in equally fragile areas like the Edgartown Great Pond. We need to control and limit density here, not increase it. This Island is already choking; we don’t want it to lose its vital signs.
Click here to follow link > Strict Regulations to Protect Sengekontacket Pond

Lodging Tax will effect Martha’s Vineyard Vacation Rental Homes

I’m an exclusive buyer broker on Martha’s Vineyard, so I don’t list property for sale. I also don’t handle any rental properties. Recently I received emails from several of my clients and Island neighbors expressing their amazement and supreme displeasure with a proposed bill that would levy a 5% hotel/motel room tax on all private rentals and timeshares.

This seems to me like an outrageous idea, especially because Martha’s Vineyard has always been a vacation destination and not everyone can afford to own a home here. Most Island lovers that find a way to own their dream home on Martha’s Vineyard do so by offsetting their expenses by renting a portion of the year. Only a very small percentage uses their properties like “temporary hotels”. According to a recent article in the Cape Cod Times, “homes, apartments, condominiums and timeshares that are rented for 90 consecutive days or less” would be subject to the proposed tax. According to this legislative mindset, “private homeowners will simply pass the tax on to the visitors. And if the tax is applied equally across the state, visitors will not head to the Berkshires instead of the Cape.” That may all sound well and good, but when you take into consideration the average vacation stay is two weeks with weekly rates starting at about $2,500 with many rentals close to beaches and towns priced well over $4,500 a week, and even into the tens of thousands, this is going to be a very hefty tax. Rental agencies charge between 10% and 20% for their services and most of them really earn it. So, you have to add that into the mix.

The article puts forth the claim that “what’s particularly unfair is that the people who rent these private homes still demand all the services that residents deserve, such as beach and road maintenance and police and rescue, but are paying no taxes to support the local services”. But they don’t take into consideration that these people pay their taxes just like year round residences; however, they don’t occupy their homes for as long as six months out of the year.

Here’s the Cape Cod Times article being referenced along with Chapter 64G under Title IX. Taxation. The proposed amendment to this law reads as follows:

“SECTION 1: Chapter 64G shall be amended by adding the following section:

“Section 13. Any city or town which accepts or has accepted the provisions of section 3A of this chapter may, by a separate vote, accept the provisions of this section and expand the imposition of said room occupancy excise tax to include other transient accommodations. Other transient accommodations is defined as any vacation or leisure accommodation, including but not limited to apartment, single or multiple family housing, cottage, condominium and timeshare unit, which is rented to occupants for a period of ninety consecutive days or less regardless of whether such use and possession is as a lessee, tenant, guest or licensee.

“For the purposes of this section, any definition in section 1 of this chapter, where the terms “room or rooms in a bed and breakfast establishment, hotel, lodging house or motel” are used shall be deemed to include the term, “other transient accommodations”

“In the case of transient accommodations, the owner of the apartment, single or multiple family housing, cottage, condominium or timeshare unit, shall be responsible for assessing, collecting, reporting, and paying over the tax and reporting as described for operators in sections 3, 4, 5, 6, and 7A, and shall be liable in the same manner as operators in section 7B.”

There’s no place like home, and no home is completely safe

Many of us own homes in areas considered to be living on the edge of ecological, topographical and geological hazards. Despite warnings based upon science and past history we keep flocking to these areas and paying the price because the view and lifestyle outweigh the risks. Martha’s Vineyard is one of those areas, hanging out in the Atlantic detached from the main land and in the flight path of hurricanes and Nor’easters. If you live in one of these so-called risk areas in time you will probably be touched by one of nature's phenomenas, but what about if you play it safe?

Some people are more cautious and look for what they hope will be a safe haven. There are no guarantees in life no matter how cautious you are or where you choose to call home. Two beliefs I try to live by are: You get what you most try to resist; make decisions coming from love not fear.
(Click here to follow link >) This was our Martha's Vineyard

Martha’s Vineyard Real Estate Property Tax Bills for all Towns are posted

Property values escalated in 2004 and 2005 to record levels having a direct effect on taxes paid by Martha’s Vineyard home owners in 2006. Requests for abatements flooded the assessor’s offices and the tax matter became contentious. There are still some heated disputes unsettled and many property owners are in arrears, because they simply weren’t prepared for the staggering increase in their taxes -- some more than 50% from the preceding year.

You can go to my website for an explanation of what is generally called the "MIL Rate" and how to compute your property tax, and you can also view the present and past five years of tax multipliers. Here is a recent MV Gazette article that discusses the 2007 Property Tax Bills .

Whether you are Buying or Selling, Owning Real Estate can save you Big Money on your Taxes

A new book “Real Estate Tax Secrets of the Rich” written by Sandy Botkin, CPA, Esq, an IRS insider, reveals the tax strategies you can use to increase your ROIs by as much as 20 percent-whether you're a home owner or a real estate investor. This accessible guide demystifies real estate taxes and shows how to achieve maximum benefit when buying, owning, selling, managing, repairing, and investing in properties.
• Features numerous forms, charts, sample documents, and other valuable tax-saving tools
• Gives you the basics on real estate taxes and shows how to take full advantage of tax loopholes

Taken from the Back Cover…
When it comes to building wealth through real estate, the rich have one important secret: SLASH YOUR TAXES
It's simple: Less tax means more money in your pocket, and more return on your investments. Real Estate Tax Secrets of the Rich, written by a longtime tax expert and IRS consultant, shows you how to use your home and investment properties as money-saving and income-generating tax shelters.
Organized in easy to understand, bite size chapters that clearly explain the strategies, this book also includes charts and flow charts for ease of understanding. Each tip in this book includes a notation from the IRS tax code, showing exactly why it works - and how it's totally, 100 percent legal.
• Pocket thousands of extra dollars when buying and selling your primary home or investment property
• Use new mortgage and tax rules to your advantage
• Make targeted repairs and improvements on your home designed to boost tax deductions
• Protect and reduce your home's “tax basis” to maximize profit
• Make yourself bullet proof from any IRS audit

Martha’s Vineyard REALTOR® earns Resort & Second-home Property Specialist designation

Peter C. Fyler, REALTOR® Broker/Owner of SplitRock Real Estate, LLC, and an Exclusive Buyer Agent with 20 years of fulltime experience in the Martha’s Vineyard real estate market has earned the designation of Resort & Second-home Property Specialist. As one of the first 250 REALTOR® members nationally to earn the designation Peter is further distinguished as an RSPS Charter Member.

A recent National Association of Realtors® survey concluded there are more than 140,000 REALTORS® currently working in resort and second-home markets, and the numbers keep growing at a time when investment property and vacation homes make up a significant portion of the overall housing market, accounting for more than one-third of residential transactions.

Savvy buyers increasingly demand the expertise of a real estate professional with proven knowledge of resort and second-home market conditions, because 36 percent of second home purchases are more than 100 miles away from the buyer’s primary residence.