12 - Disposition and Renovation - ch. 14

ucla | MGMT 170 | 2023-05-15T10:58

Table of Contents

Supplemental

Lecture

  • exit strategiees
    • to realize increased equity value created from an appreciated property → owner may sell, exchange, or refi the propeerrty
  • hold/sell analysis
    • analyze marginal rate of return from holdingg the properrty for an additional period of time ompared to sellingg the property
  • property sale
    • sell for cah and pay off outstanding debt and pay all federal, state, local taxes on capital gain
    • IRS form 1040 schedule D
  • installment sale
    • sell on an installment sale basis receiving ale price over time and paying a proportional amount of the capital gains tax with each installment received
    • amount of intallment sale income to be reported each year upon whih tax paid is a function of thee ratio between gross profit on the sale / contract price
    • installment sale is a form of selller financing
  • section 1031 exchange
    • trade the property for like kind property in a US Internal revenue code section 1031 exchangetransaction to defer taxes on any capital gains but with the exchange property having a substituted tax basis
    • setion 1031 require exchange property must be identified within 45 days of prior sale close and acquired within 180 days of the sale close
    • unlike property acquired in a section 1031 is called Boot and subject to capital gains taxe on the sale
    • Boot includess cash, peronal property, and any unlike real property received in the exchange
    • IRS Form 8824
  • Refinancing
    • replace an exiting loan with a new loan
    • if you refi with a larger loan you pay NO tax on additional loan proceed
    • if interet rates have fallen → might be posssible to refi w/ larger loan WHILE reducin annual borrowin cost → should conider point, appraisal fees, and other loan cost
  • renovation
    • as an alternative to a ale, 1031 exchange, or refi: property may be held and renovated to increase rents, occupancy, and/or reduce operating cot → iincrease NOI → increae property value
    • renovation cot, time, effort, and opportunity cost must be considered
  • sale leaseback
    • alternate means of monetizing a property where seller retains use for duration oof lease term
    • with a repurchase option in the lease → seller may buyback the ownership in the future
    • now irrelevant due to FASB ASC 842: leases >1yr mut be reported on balance sheet not just expenses on income sheet

Discussion

Resources

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