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Property industry hit by new Treasury regs.

Property industry hit by new Treasury regs

A new law which became effective Jan. 1, 1992, will concern virtually everyone currently using, or planning to use the services of a real estate broker to buy, sell, or rent real estate. As a public service, the William B. May Company will sponsor a consumer protection seminar designed to explain the rationale behind the new law, its procedural requirements, and probable consequences of not complying.

The guest speaker will be Joseph Amello, assistant director, Division of Licensing, New York Department of State. The seminar will take place on Wednesday, Feb. 26, 7 to 9 p.m., in the auditorium at 123 Remsen Street in Brooklyn Heights. Amello's department licenses real estate brokers and salespeople. It also played a leading role in the enactment of the new disclosure regulations. Following Amello's talk, a discussion period chaired by William B. May president Peter R. Marra will cover such subjects as the key to selling in this market, and pricing property correctly. All parties concerned are invited to attend. The seminar, which is free, will be limited to 125 persons. Light refreshments will be served. For reservations, please call 718-875-1289.

With consumer protection as its goal, the new State regulation requires brokers to prepare documentation making clear to all parties participating in a real estate deal, from its outset, who represents whom. The regulation applies to all transactions, rental or sale, involving one to four family dwellings, whether they are townhouses, small apartment or loft buildings, co-ops or condommums.

Although terms such as "Buyer," "Seller," and "Agent" are not exactly arcane, under the new legislation, they acquire an additional level of meaning, while their relationship to each other is spelled out. Brokers are reporting that the new regulations have both positive and negative aspects. Comments Roberta L. Faulstick, senior vice president at William B. May, and coordinator of the seminar, "Although the law now pre-empts any ambiguity as to who is "working" for whom in the sense of fiduciary, responsibility, the nature of a skillful broker's job is finding a meeting ground which best serves both sides. Besides the obvious truism that this is "working" for both parties, the kind of negotiating involved can at any point be misconstrued as not acting in the best interests of one side or the other."

In 1991, the Treasury Department issued an unusually large number of regulations that have a significant impact on the real estate industry, according to Philip J. Wiesner, director of real estate tax services, KPMG Peat Marwick's national real estate practice, based in Washington, D.C.

Not only was guidance issued with respect to "disguised" sales of property, the allocation of partnership liabilities, and the passive loss self-charged interest, but also with respect to the capitalization of construction period interest, he said.

While many of these regulation contain safe harbors that will facilitate transaction, the interest capitalization regulation contain some very complex and strongly anti-taxpayer rules, he added.

In particular, the definition of when the construction period begin, when the construction period ends or is suspended when combined with the broad concept of avoided interest will result in the capitalization of interest such that taxable income will be accelerated for many developers before any cash is generated, he pointed out.

"Unless the IRS hears from you, these regulation will probably be finalized as is," he said. "Please note that although the hearing was held on Nov. 20, it is not too late to express your displeasure with these regulation by writing the IRS National Office. Do so today!" *On the legislative front, more than five years after the 1986 Act debacle for the real estate industry, Senate Minority Leader Robert Dole of Kamas has formed a seven member panel to review the problems of the real estate industry. Better late than never, I guess *Also on the legislative front: Once again, in spite of some recent encouraging signs -- especially overwhelming industry and Congressional support -- H.R. 1414 which would provide some relief from the passive loss rules for real estate entrepreneurs appears destined not to be enacted. The stumbling blocks remain an appropriate legislative vehicle and how to pay for the relief. Unfortunately, even if H.R. 1414 were enacted this year, it may be too late to provide any meaningful tax relief for the real estate industry.
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Publication:Real Estate Weekly
Date:Feb 12, 1992
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