ES BERRY LAW PC

11/07/2020

[Personality Rights Series] Often, many talk about invasion of privacy but do not know much of personality rights. Personality rights are generally very state-specific and not controlled by federal statue. In WA, Revised Code of Washington defines a personality right as below [Chapter 63.60.010]:

"Every individual or personality has a property right in the use of his or her name, voice, signature, photograph, or likeness."

To many, personality rights could sound a lot like privacy or trademark rights. Indeed, there are certain similarities among the three legal concepts: An individual, for instance, might want to protect his or her privacy from others' use of her name or photo in a publication and seek use restrictions like s/he would do the same for infringement of personality rights. Also, personality right is a right to one's identity. A trademark right similarly intends to protect what identifies a product, a service, or a source.

Despite similarities, though, the three types of rights usually fall under different legal analyses. Personality rights can exist without a registration, for instance, while a trademark typically requires one. An individual's personality rights are often more provable and valuable when s/he is better known to others while her/his reasonable expectation of privacy is often easier to show when s/he is not a public figure. For another example, his or her monetary remedy for violation of personality rights may be primarily derived from the unjust profit that defendants received from infringement while, in invasion of privacy, her/his own harm or suffering is generally the main basis for seeking relief. The list of differences goes on (like her/his personality rights can be relatively easily assigned to or inherited to her/his children while the children would not generally claim rights to their mother's or father's privacy, etc).

That said, personality rights are quite expansive in WA. A third party's use of one's identity does not need to be always for profit. Therefore, her/his possible remedy for infringement, without limitations to the profit made by the defendant, includes an injunction, actual damage experienced by the infringed, or even a statutory damage.

Yet, a list of exemptions do exist for a third party's use of his or her name, voice, signature, photograph, or its like. Thus, its related statute has to be carefully read prior to pursuing a formal action in court.

Many additional details can be found in Revised Code of Washington from the state government's site:

https://app.leg.wa.gov/RCW/default.aspx?cite=63.60.010

Note: Any information shown on this post is for general information only. The information presented should neither be interpreted to constitute formal legal advice nor to form a lawyer/client relationship.

08/26/2020

08/24/2020

COVID-19 Reopening Guideline in Washington State-

A business needs to check frequently what phase of business re-opening its county is in and follow the state's Safe Start guideline:https://www.governor.wa.gov/sites/default/files/SafeStartPhasedReopening.pdf

A business owner also has to find out if additional guidelines have been developed for a specific industry his/her business is in. A good place to start for his/her research would be the following government link: https://www.governor.wa.gov/issues/issues/covid-19-resources/covid-19-reopening-guidance-businesses-and-workers

Note: Any information shown on this post is for general information only. The information presented should neither be interpreted to constitute formal legal advice nor to form a lawyer/client relationship.

For the latest COVID-19 information and resources visit coronavirus.wa.gov. On May 31st, 2020 Governor Inslee signed Proclamation 20-25.4 and outlined his "Safe Start" plan for a county-by-county phased reopening. Under the plan, businesses and activities will reopen in phases with adequate social d...

08/24/2020

Real Estate Investment Trust (REIT) Series-

REIT, a creation of Congress in 1960, is approximately a business entity that primarily invests into multiple real estate properties and interest-producing mortgages. It allows individuals to participate in large-scale real estate investments. It is also required to pay at least 90% of its "taxable income" to shareholders as dividends. Because it could deduct dividends from its taxable corporate income, a REIT often pays out 100% of its taxable income to owe no corporate tax. It often focuses on one type of commercial real estate. To quality for it, the business entity has to meet Internal Revenue Code 26 U.S. Code § 856.

The Code lists numerous detailed requirements, and many non-lawyers understandably become confused while reading them. Its notable requirements include the followings:

* It needs at least 100 shareholders. Five or less shareholders should not have more than 50% of its ownership, especially during the second half of the taxable year.
* It needs to be managed by board directors or trustees.
* At least 75% of its asset's Value should be in real estate, cash, and Government securities.
* At least 75% of its gross income should be from real estate-related sources.
* It needs to be taxable as a corporation.

As you can read the Code below, Value has a specific meaning to it. Generally, if market price is easily available, Value means market value. Otherwise, Value could mean fair value determined by trustees. Code link: https://www.law.cornell.edu/uscode/text/26/856 [Source: Cornell Legal Information Institute].

Note: Any information shown on this post is for general information only. The information presented should neither be interpreted to constitute formal legal advice nor to form a lawyer/client relationship.

The conditions described in paragraphs (1) to (4), inclusive, of subsection (a) must be met during the entire taxable year, and the condition described in paragraph (5) must exist during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 1...

03/29/2020

Real Estate 1031 Exchange Series- Part 4

IRC § 1031(a)(1) says no gain is recognized if and when real property held either for productive use in a trade or business or for investment is exchanged solely for real property of a like kind to be held either for productive use in a trade or business or for investment. For instance, real property held for investment can be "1031-exchanged" for real property held for productive use in a business.

It is noteworthy that a "like-kind" property explicitly, by operation of statute, excludes "real property held primarily for sale". Yet, in actual practice, it is not uncommon for one to see a fine line of difference between real property for investment and one for sale. A few court cases have dealt with determining whether or not a particular transaction should be deemed to be for investment or for sale.

For small-scale real estate investors, though, it is often wiser to make transactions that clearly fall for investment or productive use in a trade or business. Yet, that still should not prevent a small-scale real estate investor from claiming a 1031 exchange even for a mixed use property, a portion of which is used for productive use in a business while the rest is not. It's just that each portion of use should be clearly delineated so that the likelihood for a related dispute becomes minimized. For example, if someone purchased a triplex and used one of the three apartments for her own residence and the other two for rental, she can claim one apartment as a sale and the other two held as an exchange when she intends to unload the triplex in future. In this particular example, though, the portion used for residence could still benefit from IRC § 121. Exclusion of gain from sale of principal residence (the application of this seemingly simple exclusion has its own details with special rules under different circumstances. The full text of this statute can be found in https://www.law.cornell.edu/uscode/text/26/121 [Source: Cornell Legal Information Institute].

Note: Any information shown on this post is for general information only. The information presented should neither be interpreted to constitute formal legal advice nor to form a lawyer/client relationship.

Gross income shall not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as the taxpayer’s principal residence for periods aggregating 2 years or more.

03/29/2020

Real Estate 1031 Exchange Series- Part 3

In a 1031 Exchange transaction, it is important to know the definition of each key word used in its related statutes. For example, one should be able to discern the difference between realized gain and recognized gain. A simple, and perhaps the most prevalent, explanation would be that a recognized gain is a taxable portion of the realized gain. This simple explanation still requires a decent understanding of each key word being used.

Here, "taxable gain" generally means you will pay tax for the gain in near future (if not now). The 1031 Exchange is a tax-deferral arrangement. Its realized gain might be $50,000, for example, but its recognized gain could be reduced to zero. One still should note that this realized gain can be recognized in a later year and thus be taxable at a proper tax rate, meaning from zero gain now to a higher gain like $50,000 later; for the 1031 Exchange is not a tax-free arrangement but a tax deferral one.

Also, to compute which portion of realized gain is taxable or recognized, one first needs to understand how to calculate the realized gain. Realized gain is A) net sale price minus B ) adjusted tax basis. This means, one also needs to know the definitions of "net sale price" and "adjusted tax basis." Net sale price means a) sale price minus b) any transaction costs while adjusted tax basis means a cost basis of 1) what the property owner originally paid to acquire the property minus 2) what depreciation deductions the owner claimed during the years he/she owned the property. Here, what the property owner originally paid is more than the original purchase price due to additional expenses. Depreciation deductions are the tax benefits that the property owner already have taken, so they reduce the owner’s cost basis.

Consequently, to develop a sense for the total benefit of a 1031 exchange, one often should at least become aware of what each definition means, even if s/he hires professionals to execute its details.

Note: Any information shown on this post is for general information only. The information presented should neither be interpreted to constitute formal legal advice nor to form a lawyer/client relationship.

01/31/2020

Real Estate -1031 Exchange Series- Part 2

Many real estate investors are familiar with 1031 Exchange as a vehicle to defer taxes with in real estate transactions. They still underestimate the amount of its tax deferral. To see this better, they could calculate tax to pay for a real estate transaction without the exchange.

Hypothetical Case 1. X purchases a commercial building for $1.5 mil (excluding land). Each year, the purchaser benefits from its depreciation deduction, After several years, she has taken $0.5 mil depreciation deductions. She sells the property for $1.5 mil.

Initial cost basis is $1.5 mil, the original purchase cost. She might feel that there is no capital gain. Because she benefited from $0.5 mil depreciation deductions, though, her adjusted cost basis is $1.0 mil. Thus, capital gain is $0.5 mil, not $0. The long-term capital gain tax rate is generally 15% for many American households (could be either 0% or 20%, but your annual income has to be quite low or quite high for either of them). Unfortunately, the gain up to the depreciation total ($0.5 mil in this example) is subject to a typically higher tax rate called Depreciation Recapture Rate (capped at 25%). She likely pays 25% of $0.5 mil ($125K tax), rather than 15% of $0.5 mil ($75K tax). Further, she might have state income tax to $0.5 mil as well, depending on what state this property is sold in.

Hypothetical Case 2. Same as Hypothetical Case 1. except that she now sells the same property for $2.0 mil.

Then, capital gain is $1.0 mil. $0.5 mil will be again taxed at Depreciation Capture Rate (capped at 25%). $0.5 mil additional gain will be taxed at 15% long term capital gain rate. She likely pays $200K tax (25% x $0.5 mil + 15% x $0.5 mil). Further, she might have state income tax to $1.0 mil as well, depending on what state this property is sold in.

[Disclaimer. To determine precise tax rates under your specific income status, you should consult a tax professional.]