Under this provision, there is a Medicare tax that is 3.8%.  (This is an increase from the prior 2.9% that had existed as to earned income for self-employed individuals.)

In addition to increasing the rate, the tax will now cover, starting in 2013, earned income via wages, etc., as well as investment income.

Actually 2.9% applies to wages, as noted.  The 2.9% is double the 1.45%.  (The 1.45% applies to the share that an employee pays of this tax; and, the employer pays the other 1.45%.)

The rate of 3.8%, as noted, applies to wages as well as investment income in the form of dividends, interest, certain capital gains and other types of non-earned income.

The tax is 3.8% multiplied against the lesser of:

a.         Net investment income for the tax year in question; or

b.         What is referred to as a Modified Adjusted Gross Income that exceeds a threshold amount.

The threshold amount is generally $250,000 for a married couple filing a joint return.  If married couples file separate returns, the $250,000 noted results in $125,000 threshold for each of the parties.  The threshold is $200,000 for single individuals.

Some items or earnings are not included within the taxable amount for the “net investment income.”  As noted, the net investment income can include interest, dividends, and other earnings, such as capital gains.  (However, capital gains are excluded to the extent that the amount of capital gain was generated under Code §121, the exclusion rule for gain on the sale of the principal residence.  The amount of exclusion from net investment income would be the amount excluded for the principal residence rule, which exclusion is generally $500,000 for married couples filing jointly, and $250,000 for the single individual.)

Other items that might be excluded from this 3.8% tax include the items noted above, as well as certain other earnings, such as qualified distributions from retirement plans, certain tax-exempt interest, etc.  See Code §1411, noted above.

The amount of the tax rate of 3.8% is levied against the Modified Adjusted Gross Income or the investment income, the lesser of the two.

Therefore, as an example, if a married couple had a net investment income of $100,000, and the couple also had Modified Adjusted Gross Income of $400,000, the excess of the Modified Adjusted Gross Income ($400,000) over the $250,000 amount, is $150,000.  However, the $100,000 of net investment income is the lesser of the two.

Therefore, the tax would be $100,000 (x) 3.8% or a total of $3,800 of additional tax owing.

For more in this area, see new Code §1411, as mentioned.  One key point to remember for purposes of the real estate area is that this tax does not include rental income, within the category of net investment income, if the taxpayer is not in a passive activity.  For example, if the taxpayer is actively undertaking the business of real estate, property management, etc., of his or her properties, it is not a passive nature for the taxpayer; this income is not included within the rental income calculation of net investment income, as noted.

“There are often positive assumptions in internal rate of return or net present value projections that income will increase at a given rate and expenses will not rise as fast as reality might prognosticate,”
Dr. Levine explained. “Thus, the interest rates are too optimistic, and the appreciation projection is unreasonable.”

“One can quantify items like the savings on utilities. Other items, such as better air quality leading to less time off for employees, are more difficult to quantify.”

Full Article: Property Prescriptions

FIABCI is the International Real Estate Federation, founded in 1949, and with its main office located in Paris.  FIABCI addresses all real estate disciplines, including real estate law, brokerage, appraisal, property development, and property management, among others.  Mark is a senior member of FIABCI, and serves as the Dean of all FIABCI Real Estate Education throughout the world.

To contact Mark Lee Levine, please go to /http://www.levinesegev.com/contact.php or email him at mark@levinesegev.com.

[Originally published at http://www.levinesegev.com/blog/2010/02/attorney-mark-lee-levine-to-teach-at-fiabci-university/]

I.           BENEFITS OF CODE §1031:  DETAILS: Code §1031 allows for the deferral of Federal income tax (and potentially the deferral of state tax), assuming one meets the requirements under Code §1031¹.  If the requirements of Code §1031 have been met by the taxpayer, the taxpayer generally enjoys the deferral of income, and therefore the deferral of taxable gain, not the exclusion of potential taxable income from the disposition of trade or business or investment property.

In 1921, members of Congress recognized that if there were more transactions and the elimination of the hesitancy of undertaking transactions because of tax liability, this would be better for the society.  The approach from the inception of Code §1031 has been to facilitate such tax deferrals.  Not only does Code §1031 support such position, but cases², Revenue Rulings³, Revenue Procedures⁴, Regulations⁵ and other governmental guidance⁶ often support the position to allow flexibility within Code §1031 transactions.

Current studies⁷ show that the amount of tax deferral by the employment of Code §1031 is in the billions of dollars each year.  It is clear that taxpayers have been utilizing Code §1031 on a large scale.  The benefits are clearly evident to taxpayers.  They have the opportunity to move from one or more properties to one or more properties and allow for deferral of the tax.  There is not much confusion as to the issue of benefits to taxpayers using Code §1031. (Of course, even though tax deferral may be present, this does not mean that taxpayers should always utilize what they perceive as benefits under Code §1031.  See below.)

Taxpayers may find that the transaction in question is complex, as noted below.  Taxpayers may determine that the timing and other needs for the taxpayer to act are not compatible with the planning for an exchange.   In such instance, taxpayers may choose to not undertake a transaction to dispose of their existing property; or, taxpayers may chose to undertake the transaction and pay the tax (as a “sale”), realizing that the tax deferral did not meet their needs under the given circumstances.

II.          DISADVANTAGES OF CODE §1031:  DETAILS:

The concern for a taxpayer utilizing Code §1031 is to comply in a way that produces the deferral of taxable income.  If the taxpayer fails to comply, as noted, taxable gain could be generated.  However, even if the taxpayer complies with Code §1031, there can be some risk to the taxpayer.  Such risks may produce very adverse tax and other economic positions to the taxpayer, who was attempting to enjoy the benefits of tax deferral under Code §1031.

Consider, for example:

1.          IMPROPER ACTIONS OF THIRD PARTIES:  One example of such concern, which is examined later in this Note, is the circumstance where a taxpayer had planned to defer tax by having monies held by a third party that were received from the disposition of the taxpayer’s property.  If those funds are not available to the taxpayer, because the third party acts improperly, enters bankruptcy, or otherwise places the funds in jeopardy, the taxpayer faces adverse economic and adverse tax results.

2.         COMPLEXITY: The more commonplace concern for the taxpayer is not with the unusual situation of a problem with a third party, who is involved with facilitating the taxpayer’s exchange.  Rather, the concern for many taxpayers is often the complexity that is involved in undertaking the tax-deferred exchange in some circumstances.  (If such complexity is particularly bothersome to the taxpayer, the taxpayer may choose to pay current income taxes and not use the tax benefits of the exchange.)

Such complexity can result from many of the requirements that are placed on taxpayers when undertaking an exchange that is not simultaneous in nature.  For example, if Mr. X transfers his X-1 property to Miss Y, and Miss Y transfers her Y-1 property to Mr. X, this is straightforward, with little complexity, assuming there are no mortgages, no “non-like-kind” property is involved, and no other unusual circumstances exist.

However, to the contrary, as to the above points, if there are complexities because Mr. X received not only like-kind Y-1 property from Miss Y, but also Mr. X received non-like-kind property, changes in debt owing by X on X-1 property, etc., this may necessitate additional guidance to Mr. X by Mr. X’s CPA, broker, attorney, title company or others who might be involved in various aspects of the exchange.

To avoid these complexities, taxpayers sometimes elect to simply ignore the existence of Code §1031, opting not to use the exchange vehicle.  If Mr. X, the seller, would simply receive monies from the sale and pay tax at the time of the sale.

Whether members of Congress anticipated such complexity when allowing for the tax-deferred exchange remains to be discussed.  However, there is little doubt that there can be great complexity in many exchanges⁸.

As mentioned, taxpayers must consider not only the position of postponing taxable income, but also the implications of the same.  Because Code §1031 is a deferral section, allowing taxpayers to avoid the tax on a current basis, taxpayers must anticipate that the gain, which is currently postponed, may be generated on future transactions.  (Taxpayers generally prefer to defer tax and have the use of money that would otherwise have been paid in taxes.  Further, taxpayers may anticipate that no tax will ever be paid on the gain, if the taxpayer continues to hold the property until the death⁹ of the taxpayer.)

Although there are clear advantages to using the exchange approach and deferral, as indicated above, there are many areas of potential disadvantages or negative positions to taxpayers that employ Code §1031.  The potential of gain being taxed in the future, at a higher rate, is a negative consideration for the taxpayer.

If the taxpayer anticipates “selling’ a property to complete the exchange, the taxpayer must acquire a property that is otherwise qualified and within Code §1031, as stated, above.  Thus, taxpayers are not free to simply dispose of the property; they must anticipate that one of the requirements of the exchange is to acquire a replacement property.  This is a factor that has negative implication to some taxpayers; therefore, it will encourage them to sell for cash and pay tax, if they do not wish to acquire replacement property.  Or, the taxpayer might consider not selling or disposing of property in the first place.

Taxpayers should not engage in the exchange approach where the taxpayer has little taxable income.  One advantage of deferring gain is because of the time value of money.  Thus, if there is no tax to be paid, because there is little taxable income by the taxpayer, there would be little incentive to incur the additional requirements of Code §1031 to defer gain, when the gain is slight.

Even if the gain is substantial, taxpayers must anticipate that they should weigh whether Code §1031 should be utilized, if the amount of taxes is not large.  That is, even if the taxpayer has a substantial amount of gain from the disposition of property, the taxpayer may have offsetting losses or credits which would reduce the amount of net tax charged to the taxpayer.  In such instance, the taxpayer should anticipate whether the exchange, and requirements to complete the exchange, outweigh the alternative to simply dispose of the property and receive cash, given the circumstances described.

There are also recent situations in the market that may encourage taxpayers to avoid the use of Code §1031. Consider the following:

1.          DIFFICULT FINANCING MARKET:  Because taxpayers must anticipate, in an exchange, moving from one property owned currently, the relinquished property, to another property, the replacement property, taxpayers must consider if there is a need for additional financing, when acquiring the replacement property.  If the financing cannot be readily obtained, this may discourage the use of an exchange, where financing is problematic.

2.          KNOWN PROPERTY:  Again, if the taxpayer is disposing of a property, this means the taxpayer must also acquire the replacement property.  Moving from a known property, the relinquished property, to an unknown property or position of the replacement property raises concerns for many taxpayers.

3.          PROBLEMS WITH INTERMEDIARIES:  Recent cases indicate that some taxpayers have been placed in jeopardy where they undertook an exchange using a third party.  The third party is often labeled as a Qualified Intermediary.  (The intent of this article is not to examine in detail when a Qualified Intermediary or third party is utilized.  However, for more on this issue, including the use of such Qualified Intermediaries under Code §1031 and Treasury Reg. §1.1031, see this footnote.)¹⁰

In other articles I have raised the concern with the potential of an intermediary acting improperly.¹¹

The creation of the need to use third parties to hold funds involved in an exchange was generated as a result of case law and subsequent legislation, which modified Code §1031.  In modifications, subsequent Regulations and other guidance issued by the Treasury, taxpayers that undertake the exchange, such as Mr. X, noted earlier, transferring his X-1 property, must replace the X-1 property.  In summary, the procedures require Mr. X to identify the property he desires as replacement property.  This identification must generally occur within 45 days from the transfer by Mr. X of the X-1 property, the relinquished property.  If Mr. X fails to identify the property within 45 days, as indicated, the exchange is not deferred under Code §1031.  It constitutes a sale.

If the taxpayer can meet the 45-day identification period, the taxpayer must nevertheless complete other requirements.  Some of these include the requirement for the taxpayer to complete the exchange in acquiring the replacement property, within 180 days of the date that the taxpayer transferred the relinquished property.  (In some instances, the 180 days is shortened, such as in the circumstance where the taxpayer’s tax return, including extensions, if any, results in a required filing date of the tax return being due in less than the 180 days.)

Taxpayers can quickly recognize that there are many requirements to meet the Code §1031 criteria to qualify for the tax-deferred exchange.  It is these complexities, along with some of the risks noted herein, that give rise to the quest for other alternatives that might provide the benefits of tax deferral for a taxpayer, benefits to the general public in encouraging the movement of property, and the elimination of many complexities and some confusion that often exists with Code §1031 transactions.

As mentioned, bankruptcy and other actions that impact a third party, who is involved in a transaction between the taxpayer relinquishing his or her property and the acquiring of property from another party, are often at issue.  Such third parties might include not only the Qualified Intermediary, as mentioned, but it might also involve help and guidance from financial planners, real estate brokers, appraisers, attorneys, CPAs, title companies and many other individuals who might provide some help and guidance in given circumstances relative to the real estate transaction involving the exchange.  (Many of these individuals might also be retained when the transaction involves the transfer of real estate for other property, even without an exchange.  However, the complexities involved in many exchanges often necessitate more time and effort by professionals that help guide the taxpayer.)  Whether the Qualified Intermediary or anyone else is involved in a bankruptcy, which might inhibit the ability to complete the exchange on a timely basis, is only one of many issues that may arise and be of concern regarding the current structure under Code §1031.

III.        THE REMEDY:

Although additional considerations may be negative in many instances involving an exchange, it is sufficient to have identified some of these considerations on the negative side, which should be addressed to determine whether alternatives might be created that could allow the benefits of a tax-deferred exchange for the taxpayer and for society, but at the same time eliminate many adverse issues and considerations in such exchange.

This Note is not designed to suggest that Congress should repeal Code §1031.  As mentioned, there are many benefits for users of Code §1031.  It is clear that members of Congress intended to create benefits to taxpayers, allowing them to postpone taxable income.  Members of Congress have supported the continued use of Code §1031.  The use of Code §1031 is advantageous to society to encourage the movement of property.  Having addressed some concerns with some exchanges, the purpose of this Note is to address alternatives that should be considered by Congress.  

IV.        ANALYSIS AND CONCLUSIONS:

I have written a number of articles¹²  which addressed the issue of complexity and risk considerations involved in Code §1031, because of improper actions by Qualified Intermediaries as well as bankruptcies involving intermediaries.  Some of these sources are noted in the footnotes.  Because of recent cases involving problems with exchanges, these issues should be revisited by Congress.

With a change by Congress, there would be no reason for much of the complexity involving use of Qualified Intermediaries, special time frames with identification, questions as to beneficiaries’ use of funds that are held in escrow pending exchanges, and much more.  Rather, if Congress would chose to restructure Code §1031 in the manner described in this Note¹³, Congress would find that many of the disadvantages of Code §1031 would be eliminated.  Further, if those issues were eliminated, taxpayers would be much more inclined to undertake exchange transactions, which would further the benefit to society of these exchanges, as discussed earlier in this Note.

If Congress would like to eliminate the concerns of third parties entering bankruptcy, which events have occurred in recent years, the changes, noted below, would solve this problem.

Changes in the law should take place to address the following:

1.          If Congress would choose to change Code §1031, with support from the Administration, along the lines noted below, taxpayers would eliminate the often harrowing concerns with the 45-day identification requirement.  Many brokers would find better and more suitable property for their clients if they were not under the strain that is produced because of the 45-day identification rule.

2.          If taxpayers could have more freedom and time to invest, this would facilitate better due diligence and better reinvestments.

3.          If taxpayers could easily undertake an exchange without the complexities that are often involved in current tax-deferred exchanges, many more taxpayers would consider undertaking exchanges.

The simple suggestion is to restructure Code §1031 to allow the taxpayer to receive cash or other non-like-kind property at the time of transferring the taxpayer’s relinquished property.  That is, if the taxpayer was allowed to receive cash and had a given time period to reinvest the cash, to allow for the deferral of tax when the taxpayer acquires qualified replacement property, this would eliminate many of the areas of confusion and complexity that currently exist within the tax law under Code §1031.

The taxpayer should be given the ability to eliminate the complexities and retain the benefits of an exchange.

Congress allowed, for many years, the use of Code §1034¹⁴, when a taxpayer disposed of his or her principal residence.  Code §1034 allowed for deferral of tax, if a taxpayer timely reinvested, such as within two years from the time of disposition of the relinquished residence.  What time frame Congress would choose to have for a reinvestment time frame under Code §1031, be it six months, one year, two years or any other time frame, should be discussed.  However, giving the taxpayer the flexibility of receiving cash or other property would mean that the taxpayer would not require the services of a Qualified Intermediary.  (This is not to say that a taxpayer would not use other advisers and experts for facilitating the exchange.  Such advisers might include a title company, attorneys, CPAs, financial advisors, real estate brokers, and many others.)  There would be no need for the taxpayer to take the taxpayer’s funds and place them in the hands of a third party, which third party might improperly utilize those funds. This approach would eliminate most concerns with bankruptcy of a third party holding funds of the taxpayer.

If Code §1031 would allow the taxpayer to dispose of his or her trade or business property or investment property, and allow for tax deferral with reinvesting within a given period, such as six months, the taxpayer would not face many of the hurdles that currently exist for the taxpayer when structuring along the lines mentioned earlier under the current position of Code §1031.

Because of business failures and a difficult economy being faced by taxpayers today, the problem with involving third parties is all that more acute.  This issue should be addressed, to eliminate the need for a taxpayer of relinquished property to place funds in the hands of some third party.  (The great majority of third party Qualified Intermediaries do act properly with regard to exchanges.  However, there is no need do place those funds in the hands of any third party, if Congress changed Code §1031 to follow the approach, mentioned earlier, under the conceptual approach of Code §1034 that applied for the principal residence.)

If Congress wants to retain the benefits of Code §1031 for taxpayers, which position I advocate, Congress should eliminate the complexities and problems of the Tax Code when dealing with third party intermediaries.  This is an example of a change that Congress can make which would be helpful to the public, benefit the taxpayer, generate less problems for the Treasury and the Internal Revenue Service, and facilitate transactions in the real estate community.  (Given economic circumstances today, tax deferrals are needed even more so with the slower economy.)

Those experts in undertaking exchange work today would continue to be in demand for their expertise by taxpayers who would like to have help in structuring transactions and in meeting the requirements of Code §1031.  Title companies that provide for services, including title work, will have demand for their title work.  Such companies facilitate information to evidence good title for a taxpayer that is acquiring replacement property.  However, there is no reason to have many current complexities and risks for taxpayers who are uncertain whether or not to undertake an exchange under the current law.  The modifications suggested should eliminate many of these concerns and would be more fruitful and beneficial for all of those undertaking exchange transactions.

[This is a preview of an article that will soon be published.]

@ Copyright by Dr. Mark Lee Levine, Denver, Colorado, 2010.   All rights reserved.

Original Web Source:

http://www.levinesegev.com/blog

http://www.levinesegev.com/blog/2010/01/section-1031-tax-deferred-exchanges-the-good-the-bad-and-the-proposed-remedy/

October, 2009 – February, 2010

Original Web Source:

http://www.levinesegev.com/blog/2009/12/sponsorship-announcement/

In this article, reference to the “Code” refers to the Internal Revenue Code of 1986 (the “Code”), as amended. Such Code has allowed a credit for home purchases. That credit initially allowed for an amount of $7,500; at the end of 2009, the Credit became the lesser of 1) $8,000, with $4,000 allowed for a married couple filing separately, or 2) 10% of the purchase price of the principal residence, assuming that the taxpayers otherwise qualified for the credit.

This housing credit was important to stimulate the economy. However, with the initial home credit expiring, there was concern that the stimulus for the market would be lost. Therefore, Congress chose to extend the credit, along with providing additional matters, under the “Worker, Home Ownership and Business Assistance Act of 2009” (WHOBA Act of 2009).

That Act was explained by the Joint Committee on Taxation in its Release entitled “Technical Explanation of Certain Revenue Provisions of the Worker, Home Ownership and Business Assistance Act of 2009” (JCX-44-09) dated November 3, 2009. That Release provided additional explanations on the home ownership issue, as well as other matters. See also such explanation at http://www.jct.gov.

Under the new law, Congress amended Section 36 of the Code and provided for changes on the credit position and further extension of the time in which to allow for a credit for home purchases, both for first time homebuyers and for qualifying existing owners that purchased a different principal residence.

The individual, under the Joint Committee explanation, is considered a “first-time homebuyer” if the individual had no home ownership in general, or no home ownership as a principal residence in the United States within a 3-year period prior to the purchase of the home in question (i.e. where the credit is claimed).

Under the prior rules, the credit limit that was allowed for a qualified purchase was $7,500, subject to being recaptured (given back) over the next 15 years. However, under the WHOBA Act of 2009 the recapture requirement has been eliminated. Thus, the “credit” evolved from a loan to a true credit, one which the taxpayer-homeowner need not repay, assuming they otherwise qualify for the credit, as noted herein. (There are many transitional rules with regard to recapture, including but not limited to situations where a taxpayer transfers or disposes of the property within 36 months from the acquisition of such property. However, the recapture rule has generally been eliminated, as noted, as long as the taxpayer-homeowner continues to use the property as the taxpayer’s principal residence.)

Under the new provisions of the WHOBA Act of 2009, the credit continues to be applicable to the principal residence. The credit will now apply for those purchases that are qualified, as noted herein, if the purchase contract is entered into before May 1, 2010 and the residence is purchased before July 1, 2010. Thus, although the credit was to have ended, Congress, under this new Act, extended the time to claim the credit.

There is a special rule for the taxpayer who has been a long-time resident of the principal residence in question (rather than a “new homebuyer”). That is, if the taxpayer is married, and the taxpayer has maintained the home as taxpayer’s principal residence for five (5) consecutive years out of the eight (8) year period ending upon the purchase of the new home, the taxpayer could still qualify for a credit. However, the credit would not be the full $8,000 amount; rather, the credit would be $6,500, or $3,250 for taxpayers who are married filing separately. Thus, although we normally say that the credit is for the “first time homebuyer,” Congress has allowed the credit to apply even for an existing homeowner, assuming certain requirements are met.

As stated, to qualify for the requirements under the tax credit, whether as a new homebuyer or a qualifying long-time homeowner, the taxpayer must use the residence in question as the taxpayer’s principal residence. There are additional requirements to be eligible for the credit. And, there are some special definitions and interpretations. A few items which may impact the eligibility for the credit include: the age of the individual seeking the credit, whether the qualifying individual is married and/or filing taxes jointly, the maximum amount of purchase price, whether the individual seeking the credit is dependent, any familial relationship between the seller and buyer, whether the individual seeking the credit is in an extended duty position or a member of the Armed Services, and whether the qualifying individual complies with other relevant code sections.

In addition to the eligibility requirements, the taxpayer will be eliminated from qualifying for the credit if the taxpayer’s modified adjusted gross income (“MAGI”), as defined in the Code, exceeds certain limits. In general, the credit will be lost for married couples filing jointly if they have an MAGI which exceeds $245,000 in the year in which the acquisition of the principal residence occurs. If one is single, the maximum MAGI is $145,000; if this is exceeded, the credit will be lost. There is a phase-out to lose the credit if the MAGI is between $125,000 and $145,000 for the single taxpayer. There is a phase-out of between $225,000 and $245,000 of MAGI for married couples filing jointly.

This is an excerpt from a soon-to-be published article by Mark Lee Levine and Libbi Levine Segev who are attorneys with the law firm of Levine Segev LLC.

To learn whether you may be able to qualify for the tax credit under the WHOBA Act of 2009 or for your other legal questions, please contact us at: (303) 434-8553 and/or http://www.levinesegev.com/contact.php.

Original Web Source:

http://www.levinesegev.com/blog/

http://www.levinesegev.com/blog/2009/12/the-new-home-owner-credit-under-the-worker-home-ownership-and-business-assistance-act-of-2009/

Requirements under the Act

Under the Act, landlords must, within one month of the termination of the lease or the surrender and acceptance of their premises, whichever occurs last, return the security deposit or an itemized statement of the deductions and balance of the security deposit, if any, to their tenant.  If provided for in a lease, this time period may be extended, but in no event may this period be extended beyond 60 days (regardless of whether the lease provides for a longer period of time).

The landlord may not use the security deposit funds to remedy normal wear and tear. In cases where a landlord properly chose to keep the security deposit, or a portion thereof, the landlord must provide the tenant with a written statement listing the exact reasons for the retention of the security deposit or any portion thereof.  The security deposit and/or an itemized statement of deduction must be mailed or delivered to the last known address of the tenant.

Liability under the Act

A landlord’s failure to comply with the Act could have harsh consequences on the landlord and may entitle the tenant to up to three times the amount wrongfully withheld by landlord, as well as the tenant’s attorney’s fees.

If 1) the landlord fails to provide the tenant with the security deposit and an itemized statement of deduction (if applicable) within a month of the termination of the lease (or up to 60 days, if a longer period is provided for in the lease), 2) the landlord decides to withhold the security deposit to remedy normal wear and tear, or 3) the landlord otherwise wrongfully withholds the security deposit, the landlord could be liable to the tenant for the entire security deposit amount.  This means that even if the majority of the security deposit could have been properly withheld by the landlord to remedy damages caused by the tenant, the landlord’s failure to provide the tenant with an itemized statement of deduction and the remainder of the security deposit within the required time period, could cause the landlord to forfeit the entire security deposit amount.

As stated, if the landlord willfully retains the security deposit in violation of the Act, the landlord could be liable to the tenant for three times the amount wrongfully withheld, as well as the tenant’s attorney’s fees.  To be entitled to these damages and attorney’s fees, the tenant must give notice to the landlord of the tenant’s intention to file legal proceedings; this notice must be given with a minimum of seven days prior to filing the action.  This means that once the tenant provides the landlord with notice of intent to file a suit and a demand for the return of the security deposit, the landlord has seven days to return the entire security deposit to the tenant, or the landlord could be liable for three times the amount wrongfully withheld, as well as the tenant’s attorney’s fees.

If the landlord has not complied with the Act by not properly returning the security deposit or a portion thereof, or by failing to timely provide the itemized statement of deduction, the landlord must return the entire security deposit to the tenant.  Following this return of the security deposit, the landlord may seek to recover non-wear and tear damages from the tenant, but must do so in a separate action in county or district court.

Whether you are a landlord or tenant, or if you have a question about a security deposit or other matters related to real estate, please contact Levine Segev LLC at (303) 434-8553, or www.levinesegev.com/contact.php.

Original Web Source:

http://www.levinesegev.com/blog/

http://www.levinesegev.com/blog/2009/12/landlordtenant-disputes-%e2%80%93-security-deposits-in-colorado-landlords%e2%80%99-rights-and-obligations/