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2019 Q&A Revisions

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The Q&As “The 2018 Tax Reform Law Chart”; “Tax Cuts and Jobs Act – In Brief”; and “Tax Cuts and Jobs Act – Highlights and In Depth” have been updated to reflect IRS and Department of the Treasury final regulations and guidance issued on January 18, 2019.

Brokers and Agents May Be Eligible for the QBI Deduction Above Thresholds

Previously, real brokers and agents with were not eligible for the QBI deduction if their taxable income was above $157,500 for single filers and $315,000 for joint filers, after which there is a phase out over a range of $50,000 (or $100,000 for joint filers). Now they may be. Above the thresholds, the QBI deduction can be based upon the “wage and capital” exemption. Specifically, the available deduction is determined by taking the greater of:

  • 50% of the W-2 wages paid by the business, or
  • The total of 25% of the W-2 wages paid by the business plus 2.5% of the cost basis of the tangible depreciable property of the business at the end of the year.

This is a basic explanation and there are other considerations, particularly if the broker or agents have multiple qualified businesses. They must consult their tax advisor to give guidance on eligibility andhow to file for the deduction. 

Safe Harbor Enables Many Rental Real Estate Owners to Claim Deduction

Guidance from the IRS and the Department of the Treasury includes a notice on a proposed revenue procedure providing a safe harbor for certain real estate enterprises that may be treated as a trade or business for purposes of the QBI deduction

The proposed revenue procedure, included in Notice 2019-07, allows individuals and entities who own rental real estate directly or through a disregarded entity to treat a rental real estate enterprise as a trade or business for purposes of the QBI deduction if certain requirements are met.  Taxpayers can rely on this safe harbor until a final revenue procedure is issued.
  
For details on this deduction, including answers to frequently-asked questions, as well as information on other TCJA provisions, visit IRS.gov/taxreform.

 

The Transfer Disclosure Statement Exemptions Q&A has been revised as follows:

Question #2 has been updated to reflect the change in the law as of January 1st, 2019, which eliminates the Transfer Disclosure Statement (“TDS”) exemption for multiple trustees where the trust is revocable. There is no trust exemption if the trustee – or trustees – is a natural person who is a trustee of a revocable trust and he or she is a former owner of the property or was an occupant in possession of the property within the preceding year. Thus, in the vast majority of circumstances, a trustee or trustees of a revocable trust will have to complete and deliver a TDS.

 

The Transfer Disclosure Statement Law Q&A has been revised as follows:

Question #5 has been updated to reflect the change in the law as of January 1st, 2019, which eliminates the Transfer Disclosure Statement (“TDS”) exemption for multiple trustees where the trust is revocable. There is no trust exemption if the trustee – or trustees – is a natural person who is a trustee of a revocable trust and he or she is a former owner of the property or was an occupant in possession of the property within the preceding year. Thus, in the vast majority of circumstances, a trustee or trustees of a revocable trust will have to complete and deliver a TDS.

Questions #14 and #17 have been revised to reflect the change in the law as of January 1st, 2019, explicitly requiring delivery of a “completed” TDS and the listing agent’s visual inspection. Specifically, the timing of the right to cancel is triggered by completion of sections I, II AND III (the Listing Agent’s visual inspection portion) of the TDS and delivery to either the buyer or the buyer’s agent.

Questions #16, #20, and #22 have been revised to reflect the change in the law as of January 1st, 2019, which will allow for electronic delivery of the TDS, and specifies that the buyer has a five day rescission right after delivery in electronic form (if the parties have agreed to conduct the transaction by electronic means).

 

The Unlawful Detainer: The Eviction Process Q&A has been revised as follows:

Question #7 has been added. It explains how to count a three day notice under current law. It highlights in red that starting September 1, 2019, weekends and judicial holidays will not be counted at all as part of the three-day period. For example, if a 3-day notice is served on Thursday, then Friday would be day 1. Saturday and Sunday would not be counted. Monday would therefore be day 2 and Tuesday day 3. The tenant would have through Tuesday to pay their rent.

Question #19 has been revised. For tenants who occupy a property that has been foreclosed upon, the right to receive a 90-day notice of termination and a special information notice (C.A.R. Form NTAF), and for the survival of full-term lease rights are current protections under California law but are due to expire at the end of 2019. However, the federal “Protecting Tenants at Foreclosure Act,” on which the California law was modeled, was permanently reauthorized on May 24, 2018.  The Protecting Tenants at Foreclosure Act contains nearly identical tenant protections to the California law with the exception of providing the special information notice.

 

The Real Estate Licensee’s Duty to Inspect Residential Property Q&A has been revised as follows:

Question #17 has been added to state that commencing January 1, 2019, whenever a TDS is required then a buyer retains a right to cancel based upon delivery of the listing agent’s visual inspection.

Question #18 has been added to state that the cancellation right is based only upon the delivery of the listing agent’s visual inspection.

Question #19 has been added to state that commencing January 1, 2019, the TDS, and the attached visual inspection whether on the third page of the TDS or on a separate AVID form, are specifically authorized by law to be delivered electronically.

Question #20 has been added to state that the buyer will have three days to cancel if the inspection is delivered in person, or five days if delivered by mail or electronically (assuming it is not delivered in advance of execution of the purchase agreement).

Question #21 has been added to state that the cancellation right based upon delivery of the visual inspection is not waivable.    

 

The Natural Hazard Disclosure Statement Q&A has been updated as follows:

Question #9 has been added to indicate that commencing, January 1, 2019, the NHD Statement may be delivered electronically. (Cal. Civil Code Sec. 1103.3(c)).  If delivered electronically, the buyer will have five days to cancel the purchase agreement if delivered after execution of the offer to purchase.  

 

The Presentation of Offers Q&A has been updated as follows:

Question #9 has been revised. Commencing January 1, 2019, both the obligation of the buyer’s agent to deliver the agency form (AD) to the seller, and the right of the buyer’s agent to deliver the agency form by certified mail when not dealing on a face-to-face basis with the seller, have been eliminated.

 

The Agency Disclosure and Confirmation; and Agency Law Summary Chart Q&A has been revised. As part of the 2019 real estate clean-up law, significant changes were made to the agency disclosure form and the confirmation of agency. These changes go into effect on January 1, 2019. The revised Q&A highlights these changes as follows:

The agency disclosure form

  • The “3rd agency” has been eliminated.
  • Plain language is used on the agency form. “Selling agent” is now “Buyer’s agent.” “Purchaser” is now “Buyer.” “Associate licensees” are now “salespersons and broker associates.”
  • The buyer’s responsibility to exercise reasonable care to protect themselves has been strengthened.         
  • All properties are subject to the agency law. The prior exemption for 5+ rentals has been eliminated.
  • “Confidential information” in a dual agency will now include facts regarding the buyer’s or seller’s financial position, motivations, bargaining position or other personal information that may impact price. This information may not be disclosed without express permission.

Confirmation of agency form changes

In addition to changes to the agency form, the C.A.R. real estate clean-up law also changed the confirmation of agency form which will now require:

  • The names of each agent
  • Their status as representing either the buyer or seller or as dual agents, and
  • Their license numbers

This information will be included in the confirmation along with the same information regarding the brokerage firm. The phrase “Agent” used to indicate the brokerage firm has been eliminated.

The Q&A includes a sample of the new confirmation form as it appears on the first page of the purchase agreement. It warns that in filling out the confirmation, if the brokerage firm is indicated as a dual agent, then all other agents must likewise be indicated as dual agents.

 

The Summary Disclosure Chart has been revised to indicate that commencing January 1, 2019, the “third” agency form (AD) given to the seller from the buyer’s agent is no longer required.

 

The Changing Offices: Transfer of Listings, Buyers, and Procedures Q&A has been revised to reflect changes in the law introduced as part of the C.A.R. sponsored real estate clean-up law. As of January 1, 2019, a responsible broker will no longer be required to physically hold a sales agent’s license. Nor will a sales agent be required to obtain back from a former broker their license, mark out the name and address of the former broker, and write in the name and address of their new responsible broker. Instead, following existing practice, notice of a change of broker affiliation or office address will be provided to the Real Estate Commissioner in a manner specified by the Commissioner which at present relies primarily on the elicensing system or by use of DRE form RE 214 (Salesperson Change Application). Questions #1, #2, #3 and #5 have been modified in light of the new law.

 

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