Buyout--When is it Discriminatory, and ? About Capital Gains

[jenbooks]

Hi, my approximately 300-apartment building has been undergoing condo conversion. Half the apartments were deregulated. There are now more than enough bonafide buyers for the plan to be approved by AG. Extensive renovations throughout, not just to apartments but common areas, make me think sponsor will be here another year although they planned to be out by December but that's just impossible.

Tenants Association hired a condo-conversion lawyer who negotiated terms he felt were good (insider discounts and protection against further "MCI's for a # of years for rent regulated tenants).

Buyout offers were pathetic probably for various reasons--that was not a strong interest of most rent regulated tenants, and also, there were some tenants who would soon be deregulated because of luxury deregulation laws, and so, it behooved the sponsor to offer low #'s in a building-wide initial offer. A few are taking the buyouts.

"If I want to negotiate a buyout on my own at some point, when is that legal and not considered a discriminatory inducement by the AG? Do I have to negotiate down the line with whoever ends up 'buying' my apartment (ie the sponsor, or a block of investors to whom my and other apartments may be sold). I am in a good position as relatively 'young' and with a nice sized apartment, and could live out my whole life here as I am unlikely to earn the vaunted $175K two years in a row. My rent is under 2K now but obviously eventually would go over 2K. Even so I am a total loss of income to the landlord in perpetuity.

Also, I saw elsewhere on this forum that buyouts are capital gains, but in googling I found a NY Times article that indicated that relinquishing a lease is indeed considered equivalent to capital gains. I'll cite the URL here in a moment, but wanted to ask, if I use the buyout as a down payment on a house/apartment somewhere else, then up to 250K will I be tax free? That would make a big difference to me even considering this. And I know the sponsor/landlord well enough to know they will play tough for a while.

Here is the relevant line (to me) from the NY Times article:

From a tax standpoint, a buyout is considered by the Internal Revenue Service to be a capital gain. Marvin Brockman, a tax lawyer and accountant in Manhattan, said a lease is considered a capital asset and thus its surrender is the sale of that asset."

Right now there are still gut renovations going on. Down the line, in terms of a buyout, they have to, I think, renovate including wiring and piping and so on so its not simply cosmetic (cosmetically my apartment is in good condition anyway).

THANX IN ADVANCE!!!!

Here is the NY Times article:

[Anna]

Negotiate buyout now?: read your T-Assoc agreement: it usually contains a provision that no member will act individually until xx date or until zz occurs.

Buyout & IRS: because you do not own the apt, putting the buyout towards future houisng expenses will not qualify for the $250k exclusion that owners of real property enjoy. The lease is PERSONAL property, not REAL property.
Search for earlier threads on this issue...

[jenbooks]

Thank you for the reply.
no, my TA did not specify such. Therefore I don't know when the sponsor can come to us individually.
So since I've been here a while, I guess I'd be taxed at 15%--long term capital gains?
Thanks again. I did read through the forums but did not find anything applicable to my particular situation.

[Jearly]

accountants say it is much more than 15%. there is no bracket for 15%.

[jenbooks]

Long term capital gains is 15% and if you've lived in a place for a while which I have the lease is considered an asset that is equivalent to sale of an asset therefore 15%. Don't know what 'accountants' you've been talking to?

[Jearly]

can moderator verify that? i heard something different from a lawyer and an accountant

[Anna]

Topic 409 - Capital Gains and Losses

Almost everything you own and use for personal or investment purposes is a capital asset. Examples are your home, household furnishings, and stocks or bonds held in your personal account. When you sell a capital asset, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss. If you received the asset as a gift or inheritance, refer to Topic 703 for information about your basis. You have a capital gain if you sell the asset for more than your basis. You have a capital loss if you sell the asset for less than your basis. Losses from the sale of personal–use property, such as your home or car, are not deductible.

Capital gains and losses are classified as long–term or short–term. If you hold the asset for more than one year before you dispose of it, your capital gain or loss is long term. If you hold it one year or less, your capital gain or loss is short term.

You may have to report capital gains and losses on Form 1040, Schedule D (PDF) . If you have a net capital gain, that gain may be taxed at a lower tax rate. The term "net capital gain" means the amount by which your net long–term capital gain for the year is more than your net short–term capital loss. The highest tax rate on a net capital gain is generally 15% (or 5%, if it would otherwise be taxed at 15% or less). There are 3 exceptions:

1. The taxable part of a gain from qualified small business stock is taxed at a maximum 28% rate.
2. Net capital gain from selling collectibles such as coins or art is taxed at a maximum 28% rate.
3. The part of any net capital gain from selling Section 1250 real property that is due to recapture of straight-line depreciation is taxed at a maximum 25% rate.

If you have a taxable capital gain, you may be required to make estimated tax payments. Refer to Topic 355, or to Publication 505, Tax Withholding and Estimated Tax for additional information.

If your capital losses exceed your capital gains, the amount of the excess loss that can be claimed is limited to $3,000, or $1,500 if you are married filing separately. If your net capital loss is more than this limit, you can carry the loss forward to later years. Use the Capital Loss Carryover Worksheet in Publication 550, to figure the amount carried forward.

Additional information on capital gains and losses is available in Publication 550, Investment Income and Expenses, and Publication 544, Sales and Other Dispositions of Assets. If you sell your main home, refer to Topics 701 and 703, or to Publication 523, Selling Your Home.

http://www.irs.gov/taxtopics/tc409.html

look up the additional NYS capital gains tax rates yourself.