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By Richard C. Colloca, Esq., Jul 5 2017 01:10AM

Important information on the 1031 Like Kind Exchange.

So what is 1031? A 1031 exchange (also called a like-kind exchange) is a swap of one business or investment asset for another. Although most swaps are taxable as sales, if you come within section 1031, you’ll either have no tax or limited tax due at the time of the exchange. In effect, you can change the form of your investment without (as the IRS views it) cashing out or recognizing a capital gain. That allows your investment to continue to grow tax deferred. There’s no limit on how many times or how frequently you can do a 1031. You can roll over the gain from one piece of investment real estate to another. Although you may have a profit on each swap, you avoid tax until you actually sell for cash many years later. Then you’ll hopefully pay only one tax, and that at a long-term capital gain rate. You do need an experienced professional when you’re doing a 1031exchange.

If you’re considering a 1031, here are 9 important points.

1. A 1031 is not for personal use.The provision is only for investment and business property, so you can’t swap your primary residence for another home. There are ways you can use a 1031 for swapping vacation homes, but this loophole is very narrow.

2. Some personal property qualifies. Most 1031 exchanges are of real estate. However, some exchanges of personal property (say a painting) can qualify. Note, however, that exchanges of corporate stock or partnership interests don’t qualify. On the other hand, interests as a tenant in common in real estate do.

3. “Like-kind” is broad. Most exchanges must merely be of “like-kind”–a phrase that doesn’t mean what you think it means. You can exchange an apartment building for raw land, or a ranch for an idustrial building The rules are surprisingly liberal. You can even exchange one business for another. But again, there are traps for many people.

4. You can do a “delayed” exchange. Classically, an exchange involves a simple swap of one property for another between two people. But the odds of finding someone with the exact property you want who wants the exact property you have are very slim. For that reason the vast majority of exchanges are delayed, three party, or Starker exchanges (named for the first tax case that allowed them). In a delayed exchange, you need a middleman who holds the cash after you “sell” your property and uses it to “buy” the replacement property for you. This three party exchange is treated as a swap.

5. You must designate replacement property.There are two key timing rules you must observe in a delayed 1031 exchange. The first relates to the designation of replacement property. Once the sale of your property occurs, the intermediary will receive the cash. You can’t receive the cash or it will spoil the 1031 treatment. Also, within 45 days of the sale of your property you must designate replacement property in writing to the intermediary, specifying the property you want to acquire.

6. You can designate multiple replacement properties.There’s long been a question about how many properties you can designate and what conditions you can impose. The IRS says you can designate three properties as the designated replacement property so long as you eventually close on one of them.

7. You must close within six months.The second timing rule in a delayed exchange relates to closing. You must close on the new property within 180 days of the sale of the old. Note that the two time periods run concurrently. That means you start counting when the sale of your property closes. If you designate replacement property exactly 45 days later, you’ll have 135 days left to close on the replacement property.

8. If you receive cash, it’s taxed.You may have cash left over after the intermediary acquires the replacement property. If so, the intermediary will pay it to you at the end of the 180 days. That cash–known as “boot”–will be taxed as partial sales proceeds from the sale of your property, generally as a capital gain.

9.One must consider mortgages and other debt. One of the main ways people experience issues with these transactions is failing to consider loans. You must consider mortgage loans or other debt on the property you relinquish, and any debt on the replacement property. If you don’t receive cash back but your liability goes down, that too will be treated as income to you just like cash. For example, if you had a mortgage of $1 million on the old property, but your mortgage on the new property you receive in exchange is only $900,000, you have $100,000 of gain that is also classified as “boot,” and it will be taxed.

If you are in need of a real estate attorney, please contact my law ofiice, or visit my website,

The above is for informational purposes only and should not be relied upon as legal advice. The above is specifically not legal advice, and we advise everyone to retain their own attorney and obtain counsel from their own attorney when dealing with any legal matter.

Richard C. Colloca, Esq.

By Richard C. Colloca, Esq., Jan 4 2017 04:04AM

New Jersey Real Estate-Time of the Essence.

Both Buyers and sellers believe that they will be closing on the purchase or sale of a property on the Contract closing date. In New Jersey, however, the closing date is not considered an “essential” term of the contract. Either party may need more time to close, and must be afforded a reasonable extension of the closing date. This many times can cause an issue for a party who makes detailed closing preperations believing the Contract closing date is set in stone.

The closing date in the standard New Jersey Contract of Sale is an estimated date, not a “hard date”. The parties can agree during attorney review to a “time of the essence” closing date. If they did and this becomes part of the Contract, it could be enforceable. However most times, in fact almost all the time, the attorneys for the parties will not agree to make the closing date an essential term, because it could subject their respective client to liability for breach of the contract. This could be the case even if due to circumstances beyond their control, they were unable to close on the date stated in the contract. If time is of the essence in the Contract, then failure to close on the exact date specified in the contract would constitute a material breach of the contract and subject the party to liability.

If the Contract closing date was not made "time is of the essence", what happens when the closing date passes and one party is ready to close but the other party will not agree to close? Once the Contract closing date set forth in the contract has passed, the party who is ready to close can then set a new closing date and declare that closing on that specific date is “time is of the essence.” Then, at that time, if the non-declaring party did not close on that new "time of the essence" closing date (we will discuss the appropriate time-frame below, but usually two weeks after the serving of time being of the essence), they can be in breach of the contract and subject to liability for that breach. The party making the "time of the essence," the non-breaching party, can seek remedies. The remedies could include what is known as specific performance, which compels the breaching party to proceed with the contract.

The party making "time to be of the essence" must give written notice of this declaration to the other party which is clear, concise and unequivocal. This written notice must be in a form required by the contract, normally by certified mail/return receipt as well, and must be sent to all parties listed in the Contract to receive notice. If a clear, concise and unequivocal notice has been provided, but the party receiving such notice believes the notice is improper for some reason, they must object to that the notice stating their position of why they believe it was not proper or the failure to object may waive their rights to do so later.

When a buyer or seller serves a notice declaring time to be of the essence, the serving party must afford the other party a reasonable period of time to close. To determine if the time provided is “reasonable,”courts examine the facts of each case, courts will look at the nature of the contract, prior conduct, if the parties have acted in good faith, and hardship or prejudice caused by the amount of time. In New Jersey, the customary time frame is typically two weeks past the approximate date set forth in the contract. There is no set in stone rule when it comes to a time frame. Through the years, this has been established by custom and local practice.

When the contract closing date passes and one party is ready to close and the other party does not agree to close, the steps the party wanting to close can take are as follows:

1. The party making “time-of-the-essence” must wait for the Contract closing date to pass.

2. The declarant must wait a “reasonable" time, past the closing date, to wait for the delaying party to prepare to close.

3. After that time-frame, if the matter does not close, the attorney for the non-delaying party sends a written letter to the delaying party that the closing must occur on a specfice date. The letter must clearly state the date, time and place of closing. The letter must state the consequences of party’s failure to attend the closing. The notice must be served per the methods set forth in the contract for communication between the parties.

4. The declarant party must be ready, willing and able to close on the set date. If the declarant is the seller, then they must be present on that date and time and at the place set in the letter and have all the necessary and signed closing documents to transfer title, with no title issues. If the declarant is the buyer, then they must appear on that date and time and must have the funds and all closing documents required by the buyer to close title.

Declaring "time to be of the essence" is a valuable remedy for a party in a real estate transaction. It is a remedy to be used to set a firm closing date and get a real estate contract to close, or otherwise bring the matter to a conclusion. It can be very unfair to a party that must close to have to wait on the other party as time continues to pass. Ostensibly, if a set in stone date is not established, then a transaction could conceivable go on in perpetuity with one party refusing to set a closing date for whatever reason. With declaring "time to be of the essence," a party must know that the time-frames involved are based upon a “reasonableness “standard which cannot always be readily quantifiable. It is always the hope after one party declares "time to be of the essence'" that both buyer and seller are able to discuss and resolve whatever the issue and close the transaction.

Should you need a real estate attorney whether you are buying or selling, please contact my office as I have over twenty years of experience in handling real estate matters.

Richard C. Colloca, Esq.

The above is for informational purposes only and is not intended as legal advice or to be relied upon. A party should always seek and retain their own attorney and discuss their specific situation with their own legal counsel.

By Richard C. Colloca, Esq., Oct 25 2016 03:24AM

Tax Changes in New Jersey

On October 14, 2016 Governor Christie signed Bill S2411 which impacts the New Jersey Estate Tax, increases the state gasoline tax by 23 cents and gradually reduces very slightly the state sales tax.

With regard to the N.J. Estate Tax, the exemption amount for New Jersey residents dying on or after January 1, 2017 will increase to $2,000,000 and on January 1, 2018 the NJ Estate Tax will be repealed completely. Currently, New Jersey has an exemption amount of $675,000, the lowest among states that impose a state-wide estate tax. A decendent that was a resident of New Jersey that died with a gross estate exceeding $675,000 would potentially owe an estate tax.

The New Jersey Inheritance Tax remains unchanged. This is a tax that is imposed on property passing to anyone other than a spouse, parent or lineal descendants- children, grandchildren and step-children-referred to as Class "A" Beneficiaries. The NJ tax rates for additional beneficiary classifications vary from 11% to 16%.

The Federal Estate Tax remains unchanged. The exemption amount on the Federal Estate Tax has varied from year to year. Presently this year the Federal exemption amount is $5,450,000 for each individual.

The Bill signed by the Governor also increases the state gasoline tax by 23 cents beginning on November 1, 2016. Also, the Bill includes a slight gradual reduction of the state sales tax from the current rate of 7% to 6.875% beginning on January 1, 2017 and then 6.625% beginning on January 1, 2018.

The NJ gross income tax exclusion on retirement and pension income will undergo a gradual increase as well. On January 1, 2017 this exclusion will rise to $40,000 for a married couple filing jointly, $30,000 for individuals as single taxpayers, and $20,000 for a married person filing separately.

Should you need a will, power of attorney or living will, please contact my office and visit my website,

Richard C. Colloca, Esq.

The above is provided for informational purposes only and should not be relied upon. It is not intended to be legal advice, and a person should retain their own attorney to discuss their own situation.

By Richard C. Colloca, Esq., Sep 26 2016 10:39PM

Many Homeowners are now renting their homes out for a short period of time (less than 30 days) through short-term hosting platform companies such as Airbnb. This is becoming more prevalent as people are finding it a great way to earn money. The vast majority of these rentals are uneventful, but every so often a major issue or even a tragedy can occur. In one case, an Airbnb renter in Texas was killed when a tree holding up a backyard hammock he was laying on collapsed on him. This instance crystallizes the fact that, before you become a short-term rental host, you must think very carefully about your liability for any injuries someone has while staying at your home and whether you have adequate insurance coverage for property damage or loss. There are many issues to consider.

Liability should a Renter become injured.

Accidents can always happen, even in the best kept homes. If you slip and fall on the stairs in your own house and injure yourself, you can probably contact your own health insurance company to cover the costs. But what if the same injury happens to one of your renters? If this renter files a claim against you, alleging his broken leg was caused by your negligence in not keeping the stairway safe, the cost of hiring a lawyer to defend against the lawsuit will run into thousands of dollars. And this doesn't include the cost of any court settlement or court judgment. So who is responsible and would pay the damages?

The hosting platform company can provide insurance coverage.

Some short-term hosting companies, like Airbnb, provide liability insurance to their hosts, others do not. Airbnb's host protection insurance program provides primary liability coverage for up to $1 million per occurrence in the event of third party claims of bodily injury or property damage. This coverage is subject to a $1 million cap per property location. This insurance may also provide coverage if a guest damages the home. This can include claims filed by a landlord against a host who has rented out his or her space. Hosts need not pay extra for this coverage, it's part of the service Airbnb provides and is included in its basic fee. This insurance is known as primary coverage, meaning it provides coverage up to a $1 million limit whether or not the host has other insurance coverage.

Other hosting platforms provide no insurance coverage, and the company,

HomeAway, recommends that hosts obtain their own short-term rental coverage from a specific insurer that has created a special combination homeowner's and short-term rental insurance policy.

Your Homeowner's or Renter's insurance policy covering short-term rentals.

Your own property insurance policy may provide some protection when you are renting out your home on a short-term basis.

Homeowners' Insurance

If you own your home, you almost certainly have a homeowner's insurance policy. Homeowners' insurance provides coverage for damage to or loss of your home and possessions and liability insurance in the event an accident occurs on your property. So, if a renter suffers an injury in your home, and you’re properly insured, your homeowners' insurance company will be required to pay for your legal defense and any settlement or damages up to and pursuant to your policy limits. However, without insurance, you’ll have to pay all these costs out of pocket.

Before renting your home to anyone, you should read your Homeowner's policy carefully. Homeowners’ policies vary from insurer to insurer, but they almost always exclude coverage for homeowners who are running a business in their homes. If you earn money by frequently renting out your home to short-term paying guests, your insurer could claim you’re running a hotel or bed and breakfast and deny coverage if one of your guests has an issue.

Most homeowner's policies do provide coverage if you rent your home only one time per year, for a single special occasion like for a major sporting event. However, some insurers may require advance notice of such rentals or require you purchase what is commonly known as an endorsement, which is an add-on to your homeowners policy. This endorsement would provide more coverage for the renter. Other policies may provide coverage if you rent your home only for a limited number of days per year--four weeks is a common limit. Such coverage may also include a notification requirement or be conditioned on purchasing an endorsement.

You should contact your insurance company and ask if your policy covers short-term rentals by paying guests. When contacting your company you should make clear how often you plan to rent out your home, whether you’ll be at home while renting, and how many people you would be hosting. You should confirm the conversation in writing and you should ask for the confirmation from the carrier in writing.

If the standard homeowners' policy doesn’t provide the coverage you need and if you continue to live in your home and simply rent out a room, you can normally obtain coverage known as unit rented to others by paying an additional premium. This may be all the additional coverage a person may need. If not, you’ll need to obtain a landlord's insurance policy that provides coverage for short-term guests. Such coverage would be more expensive than a standard homeowners' policy, depending on the level of coverage. You should contact a knowledgeable insurance broker or agent who handles this particular coverage.

Renters’ Insurance

If you are a renter, renter's insurance provides coverage in the event your personal property is destroyed or stolen, and liability protection if someone is hurt in your property. Your landlords' insurance normally only covers the building structure, not your personal property or liability. Thus, for example, if your furniture is damaged or your guest has an issue, your renter's policy would provide coverage for the damaged property.

You should note, however, that renter's insurance would still be subject to the same limitations as homeowners' insurance. It usually provides coverage for tenants who have occasional guests, but not for those specifically engaged in the business of renting out their apartments to paying guests.

Property damage caused by short term renters.

What happens when a short term guest damages your home or your personal property? If the loss is covered by your homeowner's or landlord's policy, you typically would make a claim and be reimbursed by your insurance carrier. If your homeowner's or renter's policy doesn't cover your short-term rental, however, your insurer may refuse pay you for your loss. To cover a situation such as this, some hosting companies have begun to offer their own insurance or reimbursement plans. Airbnb has a host guarantee in which the company promises to pay up to $1 million to a host for property damage caused by a renter. They specifically state that the guarantee is not insurance, and does not cover cash, collectibles, valuables, jewelry, pets, or personal liability.

Should you have any questions concerning real estate, please contact my law office, Law Offices of Richard C. Colloca, LLC.

This information is provided for general informational purposes only and is not intended to be relied upon as legal advice. For specific legal advice, questions or representation, you must retain your own attorney.

Richard C. Colloca, Esq.

By Richard C. Colloca, Esq., Sep 7 2016 03:27AM

Why you need a real estate attorney.

A real estate transaction can be very complicated as there are many issues involved. It can be especially difficult for a first time home buyer to navigate all these different issues. Even for people who have bought or sold properties in the past, when it comes to the legal aspects of the process, many are unclear how to proceed. This is why having an experienced real estate lawyer is a very wise choice as they can provide valuable assistance and advice throughout the process.Though there are various areas where a real estate attorney can provide invaluable assistance, we concentrate on five issues.

Advising on the creation of Legal Entities.

For many investors and others, it may make sense from a number of perspectives to take title to a property in the name of a newly created LLC or Corporation. For these individuals, one of the first pieces of trouble they can encounter is creating or setting up these legal entities. For a corporation for example, there will be articles of incorporation and by-laws that a lawyer can prepare. With an LLC, there will be articles of organization and an operating agreement to contend with. Due to the fact that many investors and others decide to create these entities themselves, attorneys tend to find that the information provided is insufficient. Many issues include designating the proper individual or individuals as the managers of the LLC or the president of a corporation, and having a clear delineation of authority for those who would serve as the manager, the president, vice president, or treasurer. Further if there are multiple members questions such as who owns what percentage of the company, and is everyone’s consent required when performing certain daily operations need to be answered. An attorney can help ensure all the necessary documents are created and filed with the State, as well as help prepare the organizational agreements so all potential issues between the members are addressed.

Reviewing Loan Documentation.

Financing is an integral key to real estate, and an experienced real estate attorney is familiar with all the standard financing documents, such as the mortgage and note. When you are provided with what seems like voluminous loan documents, a real estate attorney will help you review these and will help to answer any questions you might have. Each document is different and serves a purpose. A buyer should know the nature of every document they sign. That is very important and an attorney can help to answer any questions about anything you are unclear on. This is especially true for a first-time home buyer or investor who has never seen a loan document before and does not have any concept of what they are signing.

Reviewing Purchase and Sale Contracts.

This is a very important step in the real estate process because the Contract will essentially define the parties' contractual agreements and obligations. This is of upmost importance. Once you sign the Contract, for the most part, you will be held to it and this creates legal issues and responsibilities. There is a reason written contracts are used and everything is in writing when we talk about real property. An attorney can help you understand and negotiate the terms of the contract, and many times include terms that are favorable to their client's interests. Also, as many contracts favor the seller, buyers don’t always know what terms or conditions need attention and modification. For example, buyers don’t realize that inspection language can be modified as can the inspection time-frame to allow more time for both the inspection and for the seller to be notified of any repair requests. An attorney is familiar with the language of a contract and can explain the ramifications to a party and suggest changes. The inspection contingency and the mortgage contingency are two vital provisions in a contract that need to be explained and, many times, modified.

Understanding the Closing Process.

Many buyers and sellers don’t always know what the actual process will look like when they get to the closing. There are many provisions and obligations on both sides that need to be satisfied in order to close. A party must understand their responsibilities and an attorney can help explain the issues and be a guide toward the closing. Prior to closing, a buyer must satisfy all the conditions of the mortgage company and make sure they have the required monies needed for closing in place. Issues of scheduling the closing time and the final walk-through need to be discussed. A seller has to ensure they have received all the necessary municipal documentation needed to close, and that the property itself is in the contractual condition to close. On the day of closing, everything must be taken care of and addressed by both parties so the closing can take place. An attorney can assist with this and ensure everything is in place for a smooth closing transaction. A n experienced real estate lawyer can offer advice and counsel on the entire closing process so there are no surprises at the last minute and can help to clarify anything that a buyer or seller is not sure about.

Addressing Title Issues.

Prior to closing, there can be title issues that could hinder a transaction. These can include judgements, mortgages that were long ago paid but never satisfied of record, unpaid HOA fees, or outstanding taxes that have become liens against the property that now must be satisfied. A buyer must know that unless these liens are cleared prior to closing these liens will stay with the property, so when they close they would be essentially acquiring these liens, or title defects, along with it. For example, if the previous owner had a home repair that was completed but they never paid the contractor, the the contractor may have filed a lien on the property. That would need to be paid at or before closing, and if there was a judgment then a warrant to satisfy judgment would need to be provided so it could be filed so the lien would be removed from title. A real estate attorney will understand what needs to be done to remove these types of liens and would work with a title company to ensure a buyer receives clear title upon closing.

Whether you are a first-time home buyer or have been through many transactions, you never really know what legal issues may come up that you were not anticipating, or could not have really ever anticipated. An experienced real estate attorney is an essential asset to have throughout the entire process.

If you are buying or selling residential or commercial property and need an attorney, please contact my law office or visit my website,

The above is provided for informational purposes only and is not to be relied upon in any way for legal advice. We recommend to anyone that they should retain their own attorney who can help them to understand a complicated process and provide assistance.

Richard C. Colloca, Esq.

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