3.8% Medicare Tax - The Impact To Real Estate Owners

Many people are wondering if the federal capital gain tax rate will be raised.  The truth is it already has been under certain circumstances.  The new 3.8% Medicare tax on unearned income will take effect January 1, 2013.

The revenues generated from this tax will be utilized to help fund the Medicare Trust Fund.  The income subject to this tax will include net rental income, as well as the capital gains upon the sale of real property.

This additional tax will apply to those taxpayers with an Adjusted Gross Income (AGI) exceeding $200,000 (single)/ $250,000 (married).  Net losses from rents and net capital losses will reduce AGI. However, if, after losses, AGI still exceeds the AGI thresholds, the 3.8% tax would still apply to any net unearned income.

Unearned income is the income that a taxpayer derives from investing their capital, including capital gains, net rental income (net of allowable expenses including depreciation, cost of repairs, property taxes and interest expense associated with debt service), dividends and interest income. It also comes from some investments in active businesses if the investor is not an active participant in the business. The portion of unearned income that is subject both to income tax and the new Medicare tax is the amount of income derived from these sources, reduced by any expenses associated with earning that income.

The actual tax is not imposed on the AGI or solely on the investment income, but rather calculated based on a formula. The taxpayer will determine the lesser of (1) net investment income or (2) the excess of AGI over the $200,000/$250,000 AGI thresholds. Thus, if net investment income is the smaller amount, then the 3.8% tax is applied only to the net investment income amount. If the excess over the thresholds is the smaller amount, then the 3.8% tax would apply only to the excess amount.

For example. if AGI for a single individual is $275,000, then the excess over $200,000 would be $75,000 ($275,000 minus $200,000). Assume that this individual's net investment income is $60,000. The new 3.8% tax applies to the smaller amount. In this example, $60,000 of net investment income is less than the $75,000 excess over the threshold. Thus, in this example, the 3.8% tax is applied to the $60,000.

If this single individual had AGI of $275,000 and net investment income of $90,000, then the new tax would be imposed on the smaller amount: the $75,000 of excess over $200,000.

The Medicare tax will apply to a primary residence, however, only to the extent the gain realized is in excess of the $250,000/ $500,000 primary residence exclusion (and to the extent their AGI exceeds the referenced thresholds. Furthermore, net rental income from a vacation home, to the extent it has been rented out for more than 14 days, would be considered net investment income and could be subject to the new tax.

The new Medicare tax, coupled with the possible expiration of the Bush-era tax cuts (which would increase the Federal capital gain tax rate to 20%) will significantly increase the tax burden placed upon taxpayers selling real property. The opportunities to defer the capital gain tax through a 1031 tax deferred exchange or a Deferred Sales Trust will become that much more important.

www.legal1031.com

Economic Growth in NY's Brooklyn Holds Lessons For Cities

(Reuters) - Wall Street may be the financial capital of the United States, but downtown Brooklyn, just across the East River, punches above its economic weight, a report showed Thursday.

Growth in private sector employment and wages in downtown Brooklyn outpaced the rest of New York City between 2003 and 2010, according to data analyzed by the New York State Comptroller's office. Wages in downtown Brooklyn grew 48 percent during that time, while wages in New York City's five boroughs grew by 38 percent.

The health care and social assistance sector employed the largest number of people, providing around one-third of the 77,260 jobs in the area. Education jobs grew by nearly 25 percent, and account for 11 percent of jobs in the area.

In the leisure and hospitality sector, thanks to a crop of new hotels, restaurants and cultural organizations, jobs grew by 54 percent.

Median household income in downtown Brooklyn rose by 40 percent between 2005 and 2010 to $71,790, nearly $30,000 higher than the rest of Brooklyn.

In recent years, tech companies and startups have flocked to areas like DUMBO and Vinegar Hill, drawn by rents per square foot that are less than half those in midtown Manhattan, according to real estate advisory firm Newmark Knight Frank.

Downtown Brooklyn hosts the back-end operations of some of the largest financial service providers, including Goldman Sachs and Morgan Stanley. While those sectors experienced job loss during the crisis, New York State Comptroller Thomas DiNapoli said that the loss of jobs was offset by gains in other parts of the economy, particularly the cultural sector. During the recession, downtown Brooklyn was spared the job losses that hit the rest of New York City.

"Don't view investments in arts and culture as simply aesthetic, or for quality of life," he said. "It is also an economic investment."

Comptroller DiNapoli said that collaboration between the public and private sectors bolstered the area's natural advantages, which include its historic neighborhoods, riverside land, and nearly a dozen higher educational institutions.

He cited the Brooklyn Academy of Music, or BAM, and its efforts to support smaller arts organizations in their orbit.

"BAM is a dominant arts and culture institution, but they don't elbow out other organizations," he said. "They work very hard to create more venues in the BAM network of buildings so other organizations can participate in a low-cost way."

With 2.53 million inhabitants, Brooklyn is New York's most populous borough.

http://www.reuters.com/article/2012/07/26/us-growth-brooklyn-idUSBRE86P1UB20120726
Photo credit: AP 

Council Panel Upholds a Historic Skyscraper District in Brooklyn

A historic district composed largely of early office towers in downtown Brooklyn was approved in its entirety Tuesday by the City Council’s landmarks subcommittee, all but guaranteeing that the entire Council will ratify it in turn.

The vote, by the Subcommittee on Landmarks, Public Siting and Maritime Uses, was considered critical because the proposed five-block, 21-building district along Court Street had run into forceful opposition since its designation in mid-September by the Landmarks Preservation Commission.
[The 57-page designation report, as a PDF file.]

Councilmen Brad Lander, who heads the subcommittee, and Stephen Levin, who represents the district, issued a joint statement. “After close consideration,” they said, “we believe that this new historic district will strengthen the character of Downtown Brooklyn, allowing for new development and growth, like the new retail space planned for the Municipal Building, while preserving the graceful, historic, early-generation skyscrapers that make it Brooklyn’s civic center.”

The co-op board at 75 Livingston Street, arguably the most distinctive tower in the district, objected to the prospect of added scrutiny and review by the city, saying it had already invested more than $6 million and taken great care of the property, formerly the Brooklyn Chamber of Commerce Building.

A flier from the Real Estate Board of New York opposing the district.

The Real Estate Board of New York raised the specter of a regulatory regime that would make it difficult for owners of even the most undistinguished buildings in the district to make alterations required to attract or keep tenants. “Landmarking will send costs skyrocketing for local residents and business owners,” the board said in a mailing to the neighborhood. “In these economic times, when every dollar counts, landmarking threatens to send Court Street back to the ‘bad old days’ of empty storefronts and dirty streets.”

But Mr. Lander and Mr. Levin said in their statement that new guidelines being proposed by the commission “will allow many more new and relocating stores — in Downtown Brooklyn and around the city — to obtain a quick, staff-level approval for exterior work (much of which currently requires a more extensive review and vote by the full commission).” They also called on the commission to “show maximum appropriate flexibility” in their dealings with the co-operators at 75 Livingston Street.

The vote in the subcommittee was 4-to-0, with 2 abstentions.


-NY Times
http://cityroom.blogs.nytimes.com/2012/01/24/council-panel-upholds-a-historic-skyscraper-district-in-brooklyn/

St. Ann's Warehouse Signs Lease for New Space in DUMBO

St. Ann’s Warehouse, the Brooklyn theater that has provided a home for highly regarded productions including “Black Watch” and “Misterman,” will itself continue to have a home in Dumbo, not far from its current location in that neighborhood. The theater said on Monday that it had signed a three-year lease for a new space at 29 Jay Street, where it plans to open next fall after leaving its longtime base of operations at 38 Water Street following the conclusion of its current season in May.

St. Ann’s was required to leave 38 Water Street, where it has been since 2001, because the space is scheduled for commercial development. A plan to move the theater into the Tobacco Warehouse, a Civil War-era structure opposite the Water Street building, and provide it with a $15 million renovation had to be abandoned earlier this year when a judge struck down a decision by the National Park Service to remove the Tobacco Warehouse from classification as federally designated parkland.

Susan Feldman, the artistic director of St. Ann’s, said that the 19,000-square-foot space at 29 Jay Street is one that the theater had contemplated at previous junctures in its search but was not previously available. When the Tobacco Warehouse ruling was made in July, Ms. Feldman, who was then in France, said she sent out “an e-blast” to about 50,000 associates and followers of the theater, and got reconnected to Peter Forman, who manages the Jay Street property.

“It took a few months and it worked out,” Ms. Feldman said. “Good for him and good for us.”

Ms. Feldman said that St. Ann’s was still seeking a more permanent home. “When it comes to real estate, to find the property, to have it be available, to actually make a deal — it takes a long time,” she said.

Then again, Ms. Feldman added that when St. Ann’s Warehouse started at the St. Ann’s Church in Brooklyn Heights in 1980, “I had no idea how long that was going to last.”

“I didn’t even know that’s what was going to happen,” she said. “Then when we came to Dumbo, we were only going to be at 38 Water Street for nine months, and we’ve been there 11 years. I’m hopeful.”

Mayor Bloomberg Narrows Field For New City Tech Campus

 As reported by DNAinfo

It’s down to four... maybe?

The city has narrowed its choices for a new city-subsidized high-tech university campus, which could end up on Roosevelt Island, down to four, knocking three contenders out of the race, Mayor Michael Bloomberg said Tuesday.

“We had 27 applicants. We whittled it down to seven. I think we've told three that they’re not going to make it and that we’re working with the last four,” the mayor told an audience at the Massachusetts Institute of Technology Tuesday.

But when the mayor was pressed for details Wednesday on the ousted schools, he appeared to backtrack.

“I don’t know that the four is the right number, incidentally," he told reporters at a press conference in Queens.

A spokeswoman for the mayor did not immediately respond to requests for clarification.

The mayor refused to say Wednesday which bids are still in the running.

"No," he told reporters, when asked point blank.

But the mayor did provide some hints on who might be left.

“Stanford is desperate to do it, I’m not exaggerating,” he said at MIT. “Cornell is desperate to do it. I'm not exaggerating there. There are a couple of other schools that have a really good chance as well.”

On Wednesday, he said that some of the applications just didn't make the cut.

”There were a couple that just... didn’t meet the criteria. They weren’t going to build the kind of school here that we need," he said.

Still, he reiterated, “It’s a heated competition."

The city received seven bids from 17 institutions to build the city’s next major engineering and applied campus, an opportunity that could come with a chunk of city land as well as up to $100 million in public funds to kickstart development.

Bidders range from engineering powerhouses like Stanford and Carnegie Mellon, to dark horse candidates like India’s Amity University.

Cornell University, which has teamed up with the Israeli heavyweight Technion, has proposed a new campus on Roosevelt Island, which would be home to the east coast's largest net-zero energy building — one that creates as much energy as it consumes.

Stanford, which submitted a joint proposal with the City University of New York (CUNY), has also eyed Roosevelt Island, and submitted plans for another green school that would use 50 percent less energy than a level that is already considered efficient.

Pittsburgh-based Carnegie Mellon proposed a new campus on the abandoned Navy Hospital at the Brooklyn Navy Yard, where it reportedly wants to create a new entertainment technology center in partnership with Steiner Studios, and Columbia University submitted a bid to expand its footprint uptown with a new Institute for Data Sciences and Engineering as part of its $6 billion Manhattanville expansion plan.

New York University submitted a proposal to build a new Center for Urban Science and Progress in Downtown Brooklyn’s One Metrotech Center, which would focus on helping cities improve energy efficiency, reduce congestion and pollution, and the New York Genome Center, Mount Sinai School of Medicine, Rockefeller University and SUNY Stony Brook submitted a proposal for a new facility in Midtown Manhattan that would focus on genome sequencing.

The campus bid is part of a larger push by the Bloomberg administration to lure engineering talent and new high-tech startups to the city, in a bid to rival Silicon Valley.

“The bottom line is that a lot of people that come out of these applied science or engineering schools will start companies right where they have spent time going to school. And we’re in a big battle for jobs in the city,” Bloomberg said.

“The future really, to some extent, is going to be technology.”

BQE Rehab - Not Happening Anytime Soon

 As reported by Brownstoner:

The state sent out an announcement yesterday saying plans to rehabilitate the BQE are being abandoned because of lack of funds. According to the notice, estimated costs for the revamp ran from $280 million up to $2 billion. The state was looking to rehab the section of the expressway between Atlantic Avenue and Sands Street, and the most expensive proposals involved building tunnels. The BQE, which opened in 1954, was designed to last 50 years. A separate proposal to rehab a stretch of the Gowanus Expressway was also abandoned.

MTA Sells Corner of Smith & Wyckoff. Now Retail and Apartments to Follow

As reported by Brownstoner:

The MTA sold its utility building on Smith Street and Wyckoff for $3,500,000 to an unidentified buyer. The property was named one of the fugliest buildings in Brooklyn a few years ago by AMNY, which called it “a windowless two-story bunker from the ’20s that was encased in concrete a few years ago and now looks like it could withstand a nuclear blast.” The MTA put it up for sale back in 2008. We have a feeling tears won’t be shed if this one is demolished.