Archive for 'Loans'

Jul 31

little-boxes-624x236

Additional information on returns relating to mortgage interest.

Sec. 6050H is amended to require new information on the mortgage information statements that are required
to be sent to individuals who pay more than $600 in mortgage interest in a year. These statements will now be
required to report the outstanding principal on the mortgage at the beginning of the calendar year, the address
of the property securing the mortgage, and the mortgage origination date. This change applies to returns and
statements due after Dec. 31, 2016.

Dec 11

Unknown

Nov 29

IRSTargetsThousandsOf Small BusinessesForExtraScrutiny – In 3 Parts

 

Part I – What the IRS is doing.

 The IRS has always been able to match individual tax returns against information statements and propose under reporter adjustments that come in the form of CP2000 notices. ?? But things are changing, and a new era at the IRS is upon us. ?? Now, the IRS is using information statements to find under reporting on business returns.

 

Thetaxagencyisdoingsome targetingofitsown,fingeringatleast 20,000smallbusinesses. Andthatnumber willgrow. Thescrutinyonthisgroupandinthisway isalittlefrightening.   Smallbusinesspeople acrossAmericaarereceivingIRSnotices. Morewillbecoming.TheIRSgathersdata frommanythirdparties-including credit cardcompanies-toseeif youpickedup everynickelofincome. Remembertorecordandpay

tax on all transactions?

 

In September, the IRS started its first information return-matching program for business return Forms 1120, 1120S and 1065. This program matched business return incomes to the total amounts reported on all information returns. ??  That would include merchant reporting of credit cards and third party network payments and cash reporting.

 

This year, business taxpayers also started receiving Form 1099-K, Merchant Card and Third-party Network Payments, reporting amounts received from payment settlement entities (from debit/credit cards and third-party network payers such as PayPal). To avoid taxpayer burden, the IRS stated in a letter to the National Federation of Independent Business on Feb. 9 that it will not require taxpayers to separately report amounts from Forms 1099-K on returns, and has no plans to in the future. ??

 

Wait a minute; not everyone is convinced. One Congressman, Sam Graves (R­ Mo), Chairman of the House Committee on Small Business, notes that the IRS’s first sentence begins, “Your gross receipts may have been underreported.” Says Congressman Graves that sounds like the IRS is looking for more than just additionalinformation. It soundslikeitcouldmeanmoretaxes,penalties andinterest,Sam Graves wroteinthislettertothe agency.

Mr.Gravessuggeststhattheletterscouldintimidate businesses.Hesaysthatasmallbusinessowner receivingthisnoticemaybealarmedandfeel threatened. TheIRSnoticegoesontosayyour receiptsareofffromanIRSaverage. Within30 days,pleaseprovidedocumentationtoprovewhy yournumbersdon’tfallwithinIRS’sstandard,the IRSasks.

 

YettheIRSdoesn’trevealitssourceanddoesn’tsay

whatthestandardisorwhereitcamefrom. It soundslikeyouarebeingaskedtoprovethat youdidn’tunderreportyourincome. That’s provinganegative,andcouldrequireextensive correspondenceanddocumentation.

 

AsaresultofForm1099changesandtheever-increasingwebofreporting,theIRSreceives detaileddataaboutcredit-anddebit-card transactions. TheIRSminesthedataandmaythink thatahighpercentageofcardtransactionsmay meanyouarenotreportingall thecashyoureceive.

 

‘Pleaseexplain,’theIRSmayask. – go to Part II

Jul 29

As simple as it may sound, the ex- act required down payment for a U.S. Small Business Administration (SBA) loan is often a source of confusion for commercial mortgage brokers, borrowers and lenders alike. The reasons vary, but many industry professionals have long relied on hearsay when it comes to the required amount of down payment for SBA requests. Commercial mortgage brokers must keep themselves informed about the guidance provided by the SBA regarding the required down payment for each of its programs — the SBA 7(a) and SBA 504, in particular — as well as relevant industry practices.

A frequent source of confusion stems from the SBA 7(a) program’s requirements regarding borrower down payment versus lenders’ requirements. Although SBA has oversight on credit and eligibility decisions on 7(a) loan requests, lenders often have their own credit criteria geared toward SBA lending. As a result, lenders may decline a loan request for any number of reasons that may not necessarily be related to SBA requirements.

SBA 7(a)

When it comes to the required borrower down payment on 7(a) loans, it is beneficial to know what SBA exactly mandates. According to a document titled “Lender and Development Company Loan Programs” published by the SBA in 2009, “The lender must determine if the equity and the pro forma debt-to-worth are acceptable based on the factors related to that type of business, experience of the management and the level of competition in the market area.”

“The lender must include in its credit analysis a detailed discussion of the required equity and its adequacy,” it adds.

With this in mind, it is clear that lenders rather than the SBA are usually the actual decision makers on the amount of required equity. The SBA typically will raise questions if the amount seems light given the industry or nature of the transaction, but often lenders’ down payment requirements are what borrowers have to meet.

Many lenders typically will require a 10 percent down payment on the purchase of fixed assets. They also will ask for more than 10 percent to be injected if the request is made by a startup or for business acquisition, which reflects prudent lending standards because the risk profile of these requests is higher, meaning that more equity is required to mitigate that risk.

Closing costs

Commercial mortgage brokers also should advise their clients about the possibility of rolling the closing costs into the total loan amount, which may not be the case with conventional loans. For example, if a property is purchased at $1 million and the closing costs are $30,000, many lenders will allow these costs to be financed along with the purchase price. In this case, if a borrower provides a 10 percent down payment on a fixed-asset purchase of $1 million, the loan amount will be $930,000 and the total out-of-pocket equity down payment from the borrower will be $100,000.

In addition, remember that lenders typically consider the totality of the request (credit scores, historical repayment ability, collateral, management experience, etc.) in determining their comfort level with the down payment amount that borrowers are required to inject. As a result, lenders’ decisions can vary and a decline by one lender does not mean necessarily that the request is not suitable for SBA approval. Similarly, lenders may vary in their down payment requirements.

SBA 504

The SBA 504 program is more direct regarding required down payments. This program typically provides as much as 90 percent funding — a conventional first mortgage equaling 50 percent of the total project, and a below-market, 10-year or 20-year fixed-rate second mortgage for as much as 40 percent of the project provided by an SBA certified development company (CDC). The borrowers’ down payment will be about 10 percent to 20 percent.

In the 504 program, which can be used only to purchase fixed assets such as commercial real estate or equipment, the SBA requires that borrowers inject 10 percent as a down payment on the total project inclusive of closing and soft costs. If the business is a startup, an additional 5 percent is required, increasing the down payment to a minimum of 15 percent. If the business is for the purchase of a special-use facility (ice-hockey rink, hotel, car wash, etc.), an additional 5 percent also  is required.

When an additional 5 percent equity down payment is required, the amount typically reduces the second mortgage. For example, if the loan request is for a $1 million startup car wash, the bank makes a 50 percent first mortgage, SBA funding provides a 30 percent second mortgage and the borrower injects $200,000 as a down payment.

The SBA provides CDCs with some latitude in determining whether a business is considered a startup. Many CDCs will consider the business a startup only if it has been operating for two years or less, however. Finally, commercial mortgage brokers should know that payments made upfront by borrowers toward soft and closing costs — if documented — can be counted toward equity requirements if these were explicitly used for the project being submitted to the SBA.

***

Commercial mortgage brokers should look for new ways to help their clients and clarify the areas in the loan process that can be sources of confusion. Kruse and Crawford can provide advice on down payment requirements and assist in determining the right loan source for your business funding.

As published in Scotsman Guide’s Commercial Edition, July 2013. By Jim Noone

Jim Noone is vice president at Prudent Lenders. Prudent Lenders provides U.S. Small Business Administration 7(a) loan processing, closing and portfolio servicing to community banks across the country with speed and efficiency and the added peace of mind that it has been “done right.” http://prudentlenders.com/  Reach Jim Noone at (610) 768-7792 and jnoone@prudentlenders.com.

May 30

As either a commercial property owner or a commercial property tenant you may take advantage of qualified leasehold improvements before midnight December 31, 2013.

 What will the qualified leasehold improvements mean for you in 2013 and 2014?

 In 2013, you’ll be able to take a 15-year depreciation, a Section 179 deduction of up to $250,000 and a 50% bonus depreciation.

 In 2014, you’ll be able to take a 39-year depreciation.

 $1,000,000 in leasehold improvements applied to 2013 tax year’s 15-year schedule rather than 2014’s 39-year schedule allowing a $24,610 deduction confers these huge savings:

  1.     $250,000 deduction straight from the top

  2.     $375,000 bonus depreciation

  3.     $12,488 additional via IRS’s first year midyear convention on the 15-year depreciation

 Adding it all up, you’ll be writing-off $637,488 versus $24,610!

 What sort of leasehold improvements qualifies under the 2013 rules?

 1.     The improvement is made under or pursuant to a lease by the lessee (or sublessee) of the building’s interior portion, or by the lessor of that interior portion.

 2.     The interior portion of the building is to be occupied exclusively by the lessee (or sublessee) of that interior portion.

 3.     The improvement is placed in service more than three years after the building was first placed in service by anyone.

 Under Section 168(k)(3)(B), the qualified leasehold improvement property does not include any expenditures:

 .                 To enlarge the building

 .                 To any elevator or escalator

 .                 To any structural component benefiting a common area

 .                 To the internal structural framework of the building

  Improvements qualifying under the 2013 rules include among others these:

 .                 Utilities

 .                 Framing

 .                 Walls

 .                 Doors

 .                 Windows

 .                 Pipes and Fittings

 .                 Plumbing Fixtures

 .                 Fire Protection

 .                 HVAV

 .                 Permanent Interior Finishes

 .                 Permanent Floor Coverings

 .                 Millwork and Trim

Other qualifying improvements include movable partitions or carpeting that is not part of the property’s structure.  Such improvements will not qualify as leasehold improvements under 2014’s 39-year rules and are generally depreciable over five to seven years.

Cost-segregation is a good way to look at faster depreciation deductions for qualified leasehold improvement property.  These depreciations are tax law-approved.

Using cost-segregation, you’ll first pay the cost-segregation fees necessary to obtain the cost-segregation study.  The study will show whether or not your cost-segregation passes IRS muster.  Qualified leasehold property improvements require no such study and it’s relatively easy to identify property qualifying for the tax breaks.

 Putting qualified leasehold improvements in practical terms, imagine the case of a lessee who’s made improvements to the HVAC serving a stand-alone commercial building used for retail sales.  The improvements serve only the space occupied by the lessee and the HVAC improvements:

 1.     Do not benefit a common area.

 2.     Are not part of the building’s internal framework and structure?

 3.     Do not enlarge the building.

 4.     Placed in service more than three years after the building first entered service.

Per the IRS, the HVAC improvements qualify as either 39-year property or as tax-favored 15-year qualified leasehold improvements.  Neither the IRS nor the lessor put forward an accelerated five-year personal property depreciation claim on the HVAC improvements.

Per the IRS, the HVAC improvements do not qualify as leasehold improvements made by the lessor as they’re located on the building’s rooftop and are not located within the building’s interior.

 The taxpayer in the example above unfortunately undertook the costly HVAC improvements without good tax advice.  Had the taxpayer received knowledgeable advice first, he’d have perhaps considered installing the HVAC upgrades within the leased space.

 Landlords and tenants:  Remember to take a good look at qualified leasehold improvements.  Keep in mind the property in question must have been in service for at least three years and the improvements must be in service before midnight December 31, 2013

Call Kruse and Crawford to assure you get this done correctly.

 

Feb 13

WASHINGTON One in four consumers found an error in a credit report issued by a major agency, according to a government study released Monday.

The Federal Trade Commission study also said that 5 percent of the consumers identified errors in their reports that could lead to them paying more for mortgages, auto loans or other financial products.

The study looked at reports for 1,001 consumers issued by the three major agencies – Equifax, Experian and TransUnion. The FTC hired researchers to help consumers identify potential errors.

The study closely matches the results of a yearlong investigation by The Columbus Dispatch. The Ohio newspaper’s report last year said that thousands of consumers were denied loans because of errors on their credit reports.

The FTC says the findings underline the importance of consumers checking their credit reports.

Consumers are entitled to a free copy of their credit report each year from each of the three reporting agencies.

The FTC study also found that 20 percent of consumers had an error that was corrected by a reporting agency after the consumer disputed it. About 10 percent of consumers had their credit score changed after a reporting agency corrected errors in their reports.

The Consumer Data Industry Association, which represents the credit reporting agencies and other data companies, said the FTC study showed that the proportion of credit reports with errors that could increase the rates consumers would pay was small.

The study confirmed “that credit reports are highly accurate, and play a critical role in facilitating access to fair and affordable consumer credit,” the association said in a statement.

Experian, a British company with international operations, also said in a statement the study confirms that consumer credit reports are predominantly accurate. At the same time Experian said it “is not satisfied with this result and we continue to work toward ensuring credit reports are 100 percent accurate.”

The new U.S. Consumer Financial Protection Bureau has the authority to write and enforce rules for the credit reporting industry. In September the agency began ongoing monitoring of the credit agencies’ compliance. It’s the first time they have faced such close federal oversight.

The CFPB hasn’t yet taken any public action against the agencies. However, it is accepting complaints from consumers who discover incorrect information on their reports or have trouble getting mistakes corrected. The agencies have 15 days to respond to the complaints with a plan for fixing the problem; consumers can dispute that response.

By contrast the FTC can only take action if there is an earlier indication of wrongdoing. It cannot demand information from or investigate companies that appear to be following the law.