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Importance of Appreciation in Value of Agricultural Property to the IRS

TerryD — Thu, 24 Jan 2008 01:18:00 GMT

The value of farmland in American’s heartland has been appreciating in value even as the value of many other sectors of the real estate market have been declining in recent months. The fact that one’s farm property -- whether used for agriculture, livestock or horses -- is appreciating in value is of importance from an economic standpoint, and it helps one do battle with the IRS in the event of a hobby loss audit.

Under the hobby loss rule if you have losses in connection with any farming activity, whether horses, livestock or agriculture, the IRS may suspect that the activity is engaged in as a hobby rather than a business. Many farms have a history of losses, on and off.

This Factor is called “Expectation That Assets Will Appreciate in Value.” The term “profit” in IRS Regulations encompasses appreciation in the value of assets such as land and/or livestock used in the activity. The leading case on this point is Engdahl v. IRS. The taxpayer’s land appreciated from $83,l46 to $225,000 over a several-year period. The Tax Court held that this in itself was indicative of a profit motive. There are many similar rulings in Tax Court cases.

One important Tax Court case observed: “If losses, or even repeated losses, were the only criterion by which farming is to be judged a business, then a large proportion of the farms of the country would be outside the pale. It is the expectation of gain, and not gain itself which is one of the factors which enter into the determination of the question.”

The appreciation in value of farm property takes on importance particularly in situations where the taxpayer has been unable to show any profit years. Appreciation in value of your farm or ranch property can help prove that you have an honest expectation of making a profit despite a string of losses. The fact that a portion of your farm is used for a residence or other purposes does not preclude the IRS from considering overall appreciation in value.

This element can be crucial if you are audited by the IRS and cannot show any profit years in recent history. Appreciation in value of your farm or ranch property can help prove that you have an honest expectation of making a profit despite a string of losses.

Improvements such as barns, arenas, pastures, fencing, breeding sheds, stalls, storage facilities, irrigation, ponds, lighting, and landscaping all fall within the type of improvements likely to help increase the value of the land itself.

According to tax regulations, the appreciation in the value of the land used in the activity helps to explain a taxpayer’s willingness to continue the venture despite operating losses sustained during a number of years. It is strong evidence that the taxpayer conducted the activity with an honest and actual objective of making a profit.

However, sometimes (perhaps often) the IRS will argue that the farm property -- particularly in horse and other livestock ventures -- is not economically tied up with the land, so that any appreciation in value is largely irrelevant. This position of the IRS, if and when taken, is contrary to many Tax Court cases on the subject.

It is recommended that taxpayers get a formal appraisal of their property every couple of years to help substantiate the fact that their overall venture is doing well because, if the farm were sold, there would be a significant recoupment of past losses. In a formal appraisal, the appraiser should be able to say that the land is used exclusively for the venture, and that the highest and best usage of the land is that of a farm, whether it be a horse farm, cattle ranch, or agricultural activity.

You should also be able to prove that the land was purchased, maintained and improved with the expectation that it would appreciate in value, and that this increase would enhance the overall profitability of your venture.

To recap: If you are engaged in any type of farming venture, whether it be horses, livestock or agriculture, and if you sustain a significant period of losses that you utilize to offset your principal source of income -- it is important to show that you acquired the farm property with the expectation that it would appreciate in value. You should keep documentation to prove the improvements you made to the property. You should have periodic written appraisals of the property, and the appraisals should indicate that the activity is tied up with the land, that the highest and best use of the property is as a farm, whether horses, livestock or agriculture, as the case might be.

Contributed By: John Alan Cohan, Attorney at Law

John Alan Cohan is a lawyer who has served the horse industry since l98l. He serves clients in all 50 states, and can be reached at: (3l0) 278-0203 or via email at johnalancohan@aol.com

Tax Withholding Requirement for Sellers

TerryD — Thu, 27 Dec 2007 00:04:00 GMT

Warning on withholding of funds at closing

This is an update on the Oregon Law (HB2592) that will require an closing agent to withhold funds from seller’s proceeds at the closing of non-Oregon residents or those that will not remain an Oregon resident after closing. Most title companies will provide Oregon Department of Revenue forms, shortly after opening of escrow that must be returned in advance of closing by the seller. If they do not, the closing agency may retain up to 4% of the sales price of the home. If the ODR forms are returned, the withholding may be 4% of the seller’s proceeds. There are potential delays i f forms are not returned or if there is a lack of proceeds to cover the withholding. This information was provided by a title company.

Effects of Measure 49

orop — Tue, 04 Dec 2007 01:00:00 GMT

Measure 49 Passes- New Rules for Cities

Effective December 6, 2007

REQUIREMENTS FOR CLAIMS FILED PRIOR TO JUNE 28, 2007

Claims are now limited to residential claims only- commercial, industrial, billboard claims are no longer allowed. These include the sub-division or partition of land for single family dwellings, or the establishment of single family dwellings on land on which the dwellings would not otherwise be allowed.
Property owners must prove they had the right to develop home sites when they acquired the property, and one or more non-exempt land use regulation(s) enacted on or before January 1, 2007 must prohibit the development of the dwelling and have been enacted after the property was annexed to a city. Exempt regulations include regulations addressing public health and safety, those that are reasonably necessary to avoid or abate a nuisance or those required by federal law.
Property owners with a valid claim filed prior to June 28, 2007 are limited to a maximum of 10 dwellings on property within an urban growth boundary. Claims filed prior to June 28, 2007 for more than 10 dwellings may be amended to reduce the number to no more than 10.
Claimants must prove a loss of value by an appraisal that justifies the number of new home sites permitted, and by following the statutory guidance for calculation.
If the original claim was filed by the property owner after December 4, 2006, claimants must also provide a copy of a final land use decision that denied an application by the claimant for the residential use describe in the claim. If the claim was filed after December 4, 2006, and did not include a final land use decision denying the residential use described in the claim, the property owner is not entitled to relief.
Cities, counties, and Metro must coordinate the review and decision of any overlapping claims.

PROCESS FOR CLAIMS FILED PRIOR TO JUNE 28, 2007

If a city issued a waiver before December 6, 2007:

The city must review the claim, the record on the claim, and the waiver to determine whether the property owner is entitled to relief under the new regulations. The review must be completed no later than 240 days after August 1, 2008.
The city may issue a written request to the property owner for additional information, if needed, and the property owner must file the required information within 90 days.
The city must provide written notice to the property owner, the Oregon Department of Land Conservation and Development and other qualified people entitled to notice of tentative determination as to whether the property owner qualifies for relief - and if it does, the number of single-family dwellings authorized.
The property owner has 15 days to submit evidence or arguments, after which the city makes a final determination.
A final determination must be made by September 29, 2008, and is subject to appeal in the county where the property is located.

If a city has not issued a waiver before December 6, 2007:

The city must send notice to the property owner by March 5, 2008, including an explanation that the property owner is entitled to seek relief under the new regulations; an identification of the information that the property owner must file; and a form for the claimant's use.
Property owner must respond within 120 days, and file any necessary information.
City must complete a tentative review no later than 120 days after receipt of notice from property owner, and provide notice of a tentative determination as to whether the property owner qualifies for relief, and if so, the number of single family dwellings authorized.
Property owner has 15 days to submit evidence or arguments, after which the city makes a final determination.
A final determination must be made within 180 days after receipt of the notice from the property owner and is subject to appeal in the county where the property is located.

Under the new regulations, an authorization to establish dwellings on the property is a permitted use and may be transferred, but the subsequent owner must establish the dwellings within 10 years.

Other important changes include the extension of claimant's rights to surviving spouses, and an authorization for local governments to implement and administer transferable development rights, that allow development to occur in a location different from where the waiver was granted.

REQUIREMENTS FOR CLAIMS FILED AFTER JUNE 28, 2007

Claims must be for residential use only, and a property owner's use of the property is restricted by one or more non-exempt land use regulations that are enacted after January 1, 2007, and after the property was annexed to a city.
Claimants must prove a loss of value by appraisal that justifies the number of new home sites requested, that follows statutory guidance for calculation, and that determines the highest and best use of the property at the time the land use regulation was enacted.
If a claim is determined to be valid, a city must either: compensate the claimant for the reduction of fair market value or authorize the claimant to use the property without application of the land use regulation to the extent of the reduction of fair market value of the property. Any use authorized by a waiver is considered a lawful nonconforming use.

PROCESS FOR CLAIMS FILED AFTER JUNE 28, 2007

Claims must be filed with the public entity that enacted the land use regulation that is the basis for the claim, by all owners of a property, and only one claim for each property may be filed for each land use regulation. Claims must be filed within five years after the date in which the land use regulation was enacted, and must contain the information required by statute, including an appraisal, description of the restricting regulation and desired use of the property.
Cities may impose a fee for the review of a claim in an amount not to exceed the actual and reasonable cost of reviewing the claim.
Cities must issue a final determination within 180 days after the date the claim is complete. If claim is incomplete, the city must notify the claimant within 60 days after receiving the claim and allow response from the claimant.
Once a claim is complete, notice must be provided at least 30 days before a hearing (if desired by the city) or 30 days before a deadline of submission of comments to: the claimant; property owners as per quasi-judicial hearing requirements; the Oregon Department of Land Conservation and Development; and appropriate county, and/or Metro. Notice requirements and hearing procedures are described in detail by the new statutory provisions.
Cities must mail a copy of the final determination to the claimant and persons that submitted written evidence or arguments before the close of the record. Cities must also forward the final determination to the county for recording in the deed records in which the property is located.
Final determinations are subject to appeal in the county where the property is located.

Further questions about Measure 49 can be addressed to Linda Ludwig at:

lludwig@orcities.org - http://www.orcities.org/

Loose Lending Practices

TerryD — Mon, 18 Jun 2007 21:02:00 GMT

Being in the real estate business people often ask me about market performance, future forecasts, and “buys” in the neighborhood. Recently I had a conversation with a neighbor of mine and the subject turned to the retraction of the sub-prime lending markets and the impacts locally. Interestingly the guy I was talking with was surprised by my objection to the statement that the difficulties was limited to a national theater. What a lot of people don’t realize is that foreign investment has been hot for mortgage backed securities. Historically they have been a safe-stable source for investment. However, the period of “loose lending” has put that all at risk. We may all be paying a much higher price for loose lending practices. Just as the borrower shows no respect for the loan obligation, the loan originator will further distance himself from the secondary market for which he sold the loan. I am sure that a number of those repurchase agreements will be greeted with a no forwarding address reply.

Back in the old days, credit meant something. Can you repay the obligation, do you have the ability to replay the obligation, have you paid your obligations in the past, and is there a reasonable chance that you will pay your obligations in the future? I don’t think mortgage brokers and bankers much cared about the answer to any of those questions as long as they could put something in the box to satisfy some far off underwriter and generate fee income. Just as Americans were getting drunk on real estate, the finance community was the bartender continuing to serve the drinks. Bad credit, no credit, stated income, adjustable rate, interest only, no doc loans, anyone with the ability to fog a mirror was approved for more money than they had the ability to repay. The finance industry’s response? Consumers were demanding it and if we didn’t supply it, funding would just come from somewhere else. Gosh, that seems responsible! To be fair, real estate brokers are not immune from criticism, but I can assure you that no one has asked me to finance their real estate deal.

It is going to take some time for this to all work out. Just like the RTC fiasco of the early 1980’s, this is going to take years and some serious reform. Beyond that, we are all going to pay more for money.

Curt Johnson, SIOR

Why use a Real Estate Agent

TerryD — Wed, 13 Jun 2007 00:13:00 GMT

Your Real Estate agent is your “Information Headquarters”. We are able to give you up-to-date information on what is happening in the marketplace and what conditions might affect your personal real estate goals.

A Real Estate agent is more than just a sales person! They act on your behalf as “your” agent, providing you with expert advice and guidance. They strive to make your home buying or selling experience more informed and less stressful.

If you are buying a home, an agent can assist you in the selection process by researching the market and showing you only those homes that meet your specific needs as well as providing you objective information about each property. Once you have settled on your “Perfect Home”, they will help you negotiate the purchase of that home, optimally saving you both time and money. A Real Estate agent will help guide you through the entire closing process and make sure things flow together as smoothly as possible until the front door keys are in your hand.

If you are selling your home, a real estate agent will research both the current market conditions and your home selling goals. They balance how quickly you want to sell your home with the market conditions and present you with the optimal price to list your home at. Your agent will handle all of the advertising of your home to both other agents and the public. We know when, where, and how to advertise your property to obtain the best results. Here at Oregon Opportunities we advertise properties on as many as 20 different websites depending on the property type, as well as many different print ad publications. We do what it takes to get a buyer to your front door and then make it their front door.

In short your Oregon Opportunities team of Real Estate agents with their years of combined experience will be on “Your Side” from beginning to Closing.

Staging Your Home For Sale

TerryD — Wed, 30 May 2007 21:06:00 GMT

Staging a house for sale is a concept foreign to many home sellers. But it has been immensely popular in the San Francisco Bay area where sellers have reaped huge benefits from their efforts. In a recent Inman News article, they said the sellers don't have to fix up their home before selling if the home is priced right. There are basically two reasons why sellers should prepare their home for sale, a sales price closer to the listed price and a quicker sale. A few quick and easy cosmetic improvements ideas that can really make a difference: remove old window coverings and leave them off, remove some furniture, change out olders light fixtures, paint outdated cabinets and change cabinet knobs, and even think about painting the walls a trendy decorator color. The goal of fixing up a ahouse for sale is to get it into move-in ready condition. Fixer-uppers appeal only to certain buyers who usually want a break on the price to compensate for the condition of the property. By sprucing the property up for sale, you appeal to a much broader audience.

Commercial Market Performance

TerryD — Wed, 28 Mar 2007 19:53:00 GMT

As is often the case about this time of year, people are taking stock in market performance and projecting into the fast approaching new year. Recently I was asked specifically about the office/retail component of our local real estate market. For the purposes of this exercise, I compared sale offerings up to 5,000 square feet in Jackson County for the same period in 2005 versus 2006 as reported through Southern Oregon Multiple Listing Service (SOMLS). The polling showed 20 sales in 2005, for a median price of $475,000 and average cost per square foot of $204.75. The year-to-date numbers for 2006 indicate 37 sales, for a median price of $480,000 and an average cost per square foot of $226.00. Although not all commercial real estate sales activity occurs within the reporting domain if SOMLS, I think it does signify an overall trend in market activity. That being on of stable strength and overall general growth.

Welcome to Oregon Opportunities Blogs

admin — Tue, 27 Feb 2007 11:33:00 GMT

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Creating new posts is quick and easy. If you have the ability to post you should see a link (usually on the left) on your weblog's home page: new post. Clicking on this link takes you into your blogs administration pages for creating new posts.