In a recent report by the Department of the Treasury's Inspector General for Tax Administration it was determined the increasingly popular "like-kind" exchanges referred to as 1031 Exchanges require greater oversight to ensure taxpayer compliance.

Section 1031 of the Internal Revenue Code as been part of the Internal Revenue code for over 5o years but was little used until the 1970's when real estate investors began to take advantage of its provision allowing "like-kind" exchanges to defer (not avoid) payment of taxes on capital gains. By its own admission the Treasury's report indicates deferring capital gains through the exchange of like-kind property is growing in popularity.

The synopsys of the Treasury report states, "In a recent report, the Government Accountability Office (GAO) stated that, in reviewing securities reporting compliance, it found taxpayers had misreported 'capital gains for other assets,' including residential rental property, business personal property and real estate. The report identified 'capital gains for assets other than securities' as an area of individual taxpayer noncompliance that is a promising target for additional research to improve reporting compliance. We agree with the GAO that this area poses risks that need to be addressed."

The report goes on to state "the dollar amounts deferred have more than tripled from approximately $22.8 billion in 1998 to more than $73.6 billion in 2004...with individual taxpayers accounting for 39 percent of gains (or losses) deferred." Rest assured if the IRS feels there is under reporting or non-compliance with reporting requirements this will become an audit area.

You heard it hear first! So, do the right thing. If you have exchanged or plan on doing an exchange by all means do so. BUT, please make sure to use a reputable qualified intermediary and along a certified public accountant to ensure you are fully compliant in the transaction.

To read the full report visit the Treasury Inspector General's Audit Report - Reference 2007-30-174.

The other day I had a conversation with Sacramento County Assessor Ken Stieger.  I mentioned to Ken that as a REALTORŪ I frequently receive questions about property taxes.  I asked him if he would give me some answers to commonly asked questions about property taxes.

This is what Ken Stieger told me were ten of the most commonly asked questions of him and his office.

• When can property be reassessed (revalued for tax purposes)?  Real property (land and improvements) can only be reassessed if there has been a change in ownership, new construction, or a decline in value.
• Is there a "homeowner's exemption" and if so, what is it?  Yes, if you own and occupy your home you may qualify for a homeowner's exemption on your property.  The exemption is currently $7,000 from the assessed value of your home resulting in $70 savings per year.  Check your tax bill to see if you are already receiving one.
• Can Seniors transfer their basis from the sale of their residence to a new residence?  If one of the owners of your residence is age 55 or older and you purchase a residence of equal or lesser market value within the same county, you may transfer your old property tax base to your new property, if an application is filed with the County Assessor and certain conditions are met.
• Will remodeling my home cause it to be reassessed?  Unless you have renovated the building to the extent that it becomes substantially equivalent to a new building remodels or repairs and replacement of your existing items on your property will not cause reassessement.
• If I refinance my property will it be reassessed?  Refinancing will not cause a reassessment of the property, though you may be asked to provide supporting documentation.
• Does a transfer between spouses cause reassessment?   No, spousal transfers will not cause reassessment.
• Does transfering my interest to my children or grandchildren cause reassessment?  If an application is filed with the County Assessor and certain conditions are met then family transfers may be excluded from reassessment.
• What can I do if my property is destroyed by fire, flooding or other disasters?  Declines in value due to natural calamities such as fire, flood or earthquake or market conditions can reduce your property assessment temporarily until the condition is remedied.  You can make an application for a reduction with the County Assessor.
• What is a Supplemental Assessment?  Supplemental assessments occur whenever a change in ownership or new construction occurs, and are in addition to your annual bill sent out each October.  There bills are not normally paid through your impound account.
• What can I do if I feel my property is assessed too high?  If you feel the assessed value is too high you should first contact the Assessor's office to try to resolve the matter.  If it cannot be resolved, then you may file an appeal to the County Assessment Appeals Board which is under the County Board of Supervisors.  You must file your appeal within 60 days of the date the bill or notice was sent, or for the main roll bill, between July 1st and November 30th of each year.

For more information about Sacramento County property taxes and State Property Tax Laws please visit the Sacramento County Assessor's website at http://www.saccounty.net/assessor.

This week I have begun preparing my year end information to get ready for April 15th.  How about you?  One thing I've learned - either because of, or inspite of, my prior years of profound procrastination I am bound and determined this year to get my 1099s, mileage, retirement plan contributions, charitable, business and any other potential deductions together to be ready!  I am pleased to report that so far, so good. Progress is being made. 

Since I am still feeling in a giving mood I thought I'd share a few tax filing tips:

1. FILE EARLY and you'll get the grinding process over sooner and receive a quicker refund.
2. Get your records together BEFORE you start the filling out the forms.  Get all your W-2s and 1099s and make certain to save copies for your own records.
3. Get the RIGHT forms.  They are FREE at the IRS web-site.
4. Don't rush when you are a doing your taxes.  Be careful. Doing your taxes in a flash can cost you some cash. 
5. Double-check your math and be sure to double-check all Social Security numbers too.  These are two of the most common errors made by taxpayers and can slow down or cause even worse problems.  Getting them correct can improve chances of avoiding a fearful looking form letter while simultaneously improving your opportunity for a quicker refun.
6. Get the fastest refund by having it direct deposited.  Don't wait for a check in the mail.
7. File online and again save time.  Not only will you save time but online filing helps reduce match problems.  And again, it provides confirmation you have filed and helps speed up your refund.  68.5 million people E-filed in 2005 so get with the program and E-File!
8. Don't pull the paper bag over your face when you begin to hyperventilate with anxiety.  Instead, try the IRS web-site or calling the friendly folks at the Internal Revenue Service on their clever toll-free number 1-800-829-1040  to get the help you need.

Well, I've successfully procrastinated for about fifteen minutes now so I think I'd better get back to finding those darn receipts and making sure my mileage log is up to date.  Good luck to you!