Ryan K. Bonner, Esq., Attorney at Law

Ryan K. Bonner, Esq., Attorney at Law Serving all western PA counties in Real Estate Transactions, Estate Administration & Estate Planning

Seller Financing! Everyone wants seller financing. Some sellers offer better rates than others. Did you know, the IRS re...
11/15/2023

Seller Financing! Everyone wants seller financing. Some sellers offer better rates than others. Did you know, the IRS requires a minimum rate of interest to be charged on certain types of private loans? It is called the Applicable Federal Rate (AFR). If it is not charged, then the seller is required by the IRS to pay tax on the interest the seller would have received had the seller charged the required minimum interest rate (AFR). Here's how it works:

The Applicable Federal Rate (AFR) is the minimum interest rate that the Internal Revenue Service (IRS) allows for private loans. Each month, the IRS publishes a set of interest rates that it considers the minimum market rate for loans. Any interest rate that is less than the AFR would have tax implications.

The AFR is used by the IRS as a point of comparison versus the interest on loans between related parties, such as family members. If you were giving a loan to a family member, you would need to be sure that the interest rate charged is equal to or higher than the minimum applicable federal rate.

The IRS publishes three AFRs: short-term, mid-term, and long-term. Short-term AFR rates are determined from the one-month average of the market yields from marketable obligations, such as U.S. government T-bills with maturities of three years or less. Mid-term AFR rates are from obligations of maturities of more than three and up to nine years. Long-term AFR rates are from bonds with maturities of more than nine years.

In addition to the three basic rates, the rulings in which the AFRs are published contain several other rates that vary according to compounding period (annually, semi-annually, quarterly, monthly) and various other criteria and situations.

For example, for November 2023, the IRS stated that the annual short-term AFR was 5.30%, the mid-term AFR was 4.69%, and the long-term AFR was 4.83%. Please bear in mind that these AFR rates are subject to change by the IRS.

If you are planning on offering seller financing, or getting seller financing, always be aware of the Applicable Federal Rate (AFR) so you are not surprised come tax time. It is one thing to be taxed on money you earn. It's an even bigger punch to the gut to be taxed on money you DIDN'T earn... 🏠😳😤

Capital gains tax! What is that? When is it owed? How much is owed? Capital gains tax on real estate is paid when you se...
11/01/2023

Capital gains tax! What is that? When is it owed? How much is owed? Capital gains tax on real estate is paid when you sell a property and make a profit. The tax is calculated on the difference between the selling price and the purchase price of the property (the adjusted tax basis).

Here’s how it works:

If you sell a house or property within one year of owning it, the short-term capital gains are taxed at your ordinary income tax rate. Long-term capital gains for properties you owned for over a year are taxed at 0 percent, 15 percent, or 20 percent depending on your income tax bracket. Your tax rate is 15% on long-term capital gains if you’re a single filer earning between $44,626 to $492,300, or married filing jointly earning between $89,251 to $553,850 (2023 amounts). The capital gain will generally be taxed at 0%, 15%, or 20%, plus the 3.8% surtax for people with higher incomes.

However, there are some exceptions:

If you have owned and lived in your primary residence for at least two out of the five years leading up to the sale, up to $250,000 ($500,000 for joint filers) of your gain is tax-free. Any gain over the $250,000 or $500,000 exclusion is taxed at capital gains rates. Losses from sales of primary homes are not deductible.

Keep in mind, if the property being sold is an investment property (i.e., not your residence), you can defer the payment of capital gains tax by doing a 1031 exchange (see my previous post to learn more about this).

If you have questions about whether a capital gains tax will apply, please feel free to reach out to me.

Investors! Do you have a property you are hanging onto because you do not want to pay that hefty capital gains bill when...
10/24/2023

Investors! Do you have a property you are hanging onto because you do not want to pay that hefty capital gains bill when you sell? Let me introduce you to the 1031 exchange.

A 1031 exchange, named after Section 1031 of the U.S. Internal Revenue Code, is a swap of one real estate investment property for another that allows capital gains taxes to be deferred. Here is some basic information on how it works:

What qualifies: A key rule about the 1031 exchange is that it generally is only for business or investment properties. Property for personal use — like your home, or a vacation house — typically doesn’t count.

Like-kind property: The properties being exchanged must be considered like-kind in the eyes of the IRS for capital gains taxes to be deferred. You can exchange an apartment building for raw land, or a ranch for a strip mall. The definition of like-kind is pretty flexible.

Proceeds from the sale: Proceeds from the sale must be held in escrow by a third party (called a Qualified Intermediary), then used to buy the new property; you cannot receive them, even temporarily, without owing capital gains tax on the portion received.

Frequency of exchanges: There is no limit on how frequently you can do a 1031 exchange. You can roll over the gain from one piece of investment real estate to another and another and another.

Tax implications: Although you may have a profit on each swap, you avoid paying capital gains tax until you ultimately sell for cash many years later. If it works out as planned, you’ll pay only one tax at a long-term capital gains rate. If you hold the last 1031 exchanged property until your death, you can avoid the capital gains tax entirely.

Please note that there are many moving parts that real estate investors must understand before attempting its use. An exchange can only be made with like-kind properties, and Internal Revenue Service (IRS) rules limit its use with vacation properties. There are also tax implications and time frames that may be problematic.

If you want to know more about how a 1031 exchange works, feel free to contact me. ⚖🏠👨‍👩‍👧‍👦

The death of a relative or friend is devastating. Adding to that stress is the requirement to open probate for the decea...
10/11/2023

The death of a relative or friend is devastating. Adding to that stress is the requirement to open probate for the deceased's estate. Confused about what that is and how it works? Below are some common probate questions people often have:

1. What is probate? Probate is a “final accounting” after someone dies. It involves “proving up” the will and transferring the person’s assets to his or her living heirs.

2. What is the process when there is a will? The will is filed with the court with an application for “Letters Testamentary”. The executor is then appointed to act on behalf of the deceased.

3. What happens when there is no will? When there is no will, a dependent probate administrator (executor) is appointed to handle the probate duties. The laws of intestacy dictate how the estate is divided.

4. Do I Need Probate if the Deceased Left a Will? This depends on various factors, including the size and complexity of the estate.

5. I Don’t Want to Administer the Estate – Do I Have To? If you are named as an executor in a will, you are not legally obligated to serve. You can renounce your position as executor of the estate.

6. What Happens if We Can’t Agree on Who Should Be Appointed as Executor of the Estate? If there’s disagreement among potential executors, the court may need to intervene. Initially, a hearing will be held by the County Register, and the Register will decide who will be appointed.

7. Is There a Deadline for Administering the Estate? This can vary depending on local laws and the complexity of the estate.

8. I Can’t Find the Will – What Should I Do? If a will cannot be found, it may be necessary to apply for administration as if there was no will. In some cases, a copy of the will may be admitted.

⚖️ If you or anyone you know needs assistance with probate, or the administration of an estate or trust, please contact me at 724-458-9550. ⚖️

What, exactly, is a real estate lawyer? What does s/he do? A real estate lawyer, or real estate attorney, is a legal pro...
10/03/2023

What, exactly, is a real estate lawyer? What does s/he do? A real estate lawyer, or real estate attorney, is a legal professional who specializes in matters related to real estate, including buying, selling, leasing or transferring property. Here are some of the tasks that a real estate attorney can do during a transaction:

Negotiate Real Estate Deals: The real estate attorney conducts due diligence by ensuring terms are included in the deal that protect your interests. They also advise so the transaction meets state and federal laws.

Draft and Review Real Estate Contracts: The attorney makes sure the contract—such as the purchase, mortgage or rental agreement—is airtight and includes all the legal requirements and terms needed.

Carry Out Title Searches: Real estate attorneys also conduct title searches. A title search is necessary in many situations to ensure that: The seller has the legal right to transfer the property to the buyer; There are no liens against the property; There are no ongoing issues that affect the buyer’s ability to take possession of the property; There are no restrictive covenants or zoning ordinances limiting land use; All property taxes have been paid.

Draft Title Insurance Policies: A title insurance policy covers any third-party claims on a property that comes up after the real estate transaction has closed and was not uncovered during the initial title search.

Prepare Closing Documents: The real estate attorney can handle the loan closing process as well as making sure all the documents needed—like the deed and closing statement—are filed properly.

In addition, a real estate attorney’s role is to ensure the legal transfer of property from seller to buyer. These attorneys handle tasks like preparing or reviewing documents, ensuring that the title is clear and facilitating the transfer of funds. A real estate lawyer’s exact duties will vary depending on whether you, the seller or the lender hire them, what your state laws require and what’s needed for your home purchase to proceed smoothly.

If you are in need of the services of a real estate attorney, please reach out today!

Considering purchasing real estate? One of the documents you, as a buyer, must review is the seller disclosure statement...
09/26/2023

Considering purchasing real estate? One of the documents you, as a buyer, must review is the seller disclosure statement. What is that document? What does it require?

The seller's disclosure statement outlines any problems with a property that would impact the home’s value or safety. Sellers are legally required to disclose these issues, and by fully documenting them on the disclosure statement, sellers are better protected from future legal action (say, if a buyer was to sue the seller post-sale for previously known and undisclosed issues). Disclosure requirements fall under state law, and the requirements vary state by state. While sellers must disclose all defects and issues they know exist in their home, they don’t have to go searching for problems — if they don’t know an issue exists, they don’t have to disclose it.
Common items that need to be disclosed when selling a house include health and safety hazards (like mold, radon, and asbestos), mechanical issues (like HVAC condition or age, water, sewer and appliances), structural defects (like issues with the foundation or roof), flooding (previous water damage), and renovations (work done on the home must be disclosed, whether it was permitted or not).

Keep in mind, certain types of sellers (trustee, executor, administrator) do not have to complete a seller's disclosure statement. However, even those sellers are still required to disclose known material defects in the property or structure.

Feel free to reach out if anyone you know needs help completing or reviewing a seller disclosure statement.

Want to write a will but not sure where to start? Wondering what even goes in a will? Here is a quick primer on preparin...
09/19/2023

Want to write a will but not sure where to start? Wondering what even goes in a will? Here is a quick primer on preparing for the will consultation with your estate planning attorney:

1. Have a general idea regarding who you want to receive your assets, and in approximate percentages. Ex.: everything to my spouse, then to my children in equal shares.

2. Do you have young children? Are you leaving anything to minors (at the time the will is drafted)? If yes, then you need to consider testamentary trusts for minor beneficiaries. Young people are not always the most prudent at managing large sums of money. It may be best to leave it to them in a trust until they reach a certain age (18/21/22/25/30, for example). The trust will be administered by a trustee of your choosing (choose a backup as well). The trust will pay out to the beneficiary for the necessities of life - health, school, shelter, clothing, food, major life expenses (house, wedding, etc.). Once the beneficiary reaches the age of trust termination, the trust terminates the beneficiary takes the trust assets free and clear of the trust.

3. If you have minor children, you should also plan to name a proposed guardian in the event you are the last surviving parent, and you die while the child is still a minor. The court will take your preference into consideration during the guardianship action that is sure to come in that instance. You should also choose a backup.

4. Who do you want to be in charge of administering your estate and making sure the instructions in your will are completed? That person is called an Executor. You should also choose a backup person.

If you spend some time thinking about the above four things prior to your meeting with your estate planning attorney, you will have a very productive meeting.

Among estate planning documents, the most commonly misunderstood document, in my experience, is the living will. What is...
09/12/2023

Among estate planning documents, the most commonly misunderstood document, in my experience, is the living will. What is a living will?

A living will, also known as an advance directive, is a legal document that details a person’s desires regarding their medical treatment in circumstances in which they are no longer able to express informed consent. It outlines your preferences for medical care if you become incapacitated.

This document is used to instruct care providers in the event that you can no longer make decisions for yourself. It can also shield your loved ones from having to make difficult choices about your care and reduces the chances of confusion or arguments over what’s in your best interest.

A living will spells out medical treatments you would and would not want to be used to keep you alive, as well as your preferences for other medical decisions, such as pain management or organ donation.

In determining your wishes, think about your values. Consider how important it is to you to be independent and self-sufficient, and identify what circumstances might make you feel like your life is not worth living.

It’s important for all adults to prepare these documents. By planning ahead, you can get the medical care you want, avoid unnecessary suffering and relieve caregivers of decision-making burdens during moments of crisis or grief.

If you or someone you know needs assistance with drafting a living will, or other estate planning documents, please contact me.

Buying a house? You're probably hearing about something called Title Insurance. What it is? Why do you need it?Title ins...
09/06/2023

Buying a house? You're probably hearing about something called Title Insurance. What it is? Why do you need it?

Title insurance is a type of insurance that protects you and your lender from financial loss due to defects or problems with the TITLE (not the physical structure) of the property you are buying. Title defects are issues that affect the legal ownership or rights to the property, such as liens, easements, encumbrances, errors, fraud, or unknown heirs. If someone makes a claim against your title (that is, your right to own the property) after you buy the property, title insurance will cover the legal costs and damages up to the policy limit, which is usually the purchase price, or cost to buy and build, in the case of new construction.

You need title insurance because a title search, which is done before closing, may not reveal all the possible defects or problems with the title. A title search is a process of examining public records to determine the history and status of the property’s ownership. However, some records may be missing, inaccurate, or incomplete. For example, there could be a lien on the property that was not recorded properly, or a forged deed that transferred the ownership fraudulently. These issues could affect your ability to sell, refinance, or use the property as collateral in the future.

There are two types of title insurance: lender’s title insurance and owner’s title insurance. Lender’s title insurance is required by most lenders and protects their interest in the loan. It covers the amount of the mortgage and decreases as you pay off your loan. Owner’s title insurance protects your equity in the property. It covers the purchase price of the home (or the cost to buy and build) and lasts as long as you own the property.

Pro tip: never buy without getting a title insurance policy. You never know you need it until you are past the point of needing it. The policies are cheap (one time premium), especially compared to the problems they fix, which will be on you to solve if you don't have one.

Share this post with anyone you know that is getting ready to buy or build.

A common question I get asked: what's the difference between a General Warranty Deed and a Special Warranty Deed?The ans...
09/01/2023

A common question I get asked: what's the difference between a General Warranty Deed and a Special Warranty Deed?

The answer: A general warranty deed is better than a special warranty deed because it provides the buyer with the highest level of protection against any defects or claims on the property title. A general warranty deed covers the entire history of the property, not just the period of the seller’s ownership. This means that the seller guarantees that they have the legal right to sell the property, and that there are no liens, encumbrances, or other issues that could affect the buyer’s ownership, whether the issues would have arisen under the seller's period of ownership, or prior thereto.

A special warranty deed, on the other hand, only covers the seller’s period of ownership, and does not protect the buyer from any problems that may have existed before the seller acquired the property. A special warranty deed is more limited and risky for the buyer, as they may have to deal with potential legal challenges or expenses arising from previous owners or third parties. Therefore, a general warranty deed is more desirable and valuable for a buyer than a special warranty deed.

Always try to get a General Warranty deed for yourself or anyone you represent.

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08/27/2014

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